DIVERSIFIED RESTAURANT HOLDINGS, INC., 10-K filed on 3/9/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Mar. 8, 2018
Jun. 23, 2017
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
Diversified Restaurant Holdings, Inc. 
 
 
Entity Central Index Key
0001394156 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Smaller Reporting Company 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
26,850,416 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 36,800,000 
Consolidated Balance Sheets (USD $)
Dec. 31, 2017
Dec. 25, 2016
Current assets
 
 
Cash and cash equivalents
$ 4,371,156 
$ 4,021,126 
Accounts receivable
653,102 
276,238 
Inventory
1,591,363 
1,700,604 
Prepaid and other current assets
408,982 
1,305,936 
Total current assets
7,024,603 
7,303,904 
Deferred income taxes
16,250,928 
Property and equipment, net
48,014,043 
56,630,031 
Intangible assets, net
2,438,187 
2,666,364 
Goodwill
50,097,081 
50,100,000 
Other long-term assets
185,322 
233,539 
Total assets
107,759,236 
133,181,847 
Current liabilities
 
 
Accounts payable
4,561,939 
3,995,846 
Accrued compensation
1,854,127 
2,803,549 
Other accrued liabilities
2,404,942 
2,642,269 
Current portion of long-term debt
11,440,433 
11,307,819 
Current portion of deferred rent
411,660 
194,206 
Total current liabilities
20,673,101 
20,943,689 
Deferred rent, less current portion
2,208,238 
2,020,199 
Deferred income taxes
2,759,870 
Unfavorable operating leases
510,941 
591,247 
Other liabilities
2,346,991 
3,859,231 
Long-term debt, less current portion
102,488,730 
109,878,201 
Total liabilities
130,987,871 
137,292,567 
Commitments and contingencies (Notes 3, 10 and 11)
   
   
Stockholders' deficit
 
 
Common stock - $0.0001 par value; 100,000,000 shares authorized; 26,859,125 and 26,632,222, respectively, issued and outstanding
2,625 
2,610 
Additional paid-in capital
21,776,402 
21,355,270 
Accumulated other comprehensive loss
(283,208)
(934,222)
Accumulated deficit
(44,724,454)
(24,534,378)
Total stockholders' deficit
(23,228,635)
(4,110,720)
Total liabilities and stockholders' deficit
$ 107,759,236 
$ 133,181,847 
Consolidated Balance Sheets (Parentheticals) (USD $)
Dec. 31, 2017
Dec. 25, 2016
Statement of Financial Position [Abstract]
 
 
Common stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized (in shares)
100,000,000 
100,000,000 
Common stock, shares issued (in shares)
26,859,125 
26,632,222 
Common stock, shares outstanding (in shares)
26,859,125 
26,632,222 
Consolidated Statements of Operations (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 25, 2016
Income Statement [Abstract]
 
 
Revenue
$ 165,462,612 
$ 166,520,925 
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
 
 
Food, beverage, and packaging
48,799,718 
46,794,091 
Compensation costs
41,726,264 
41,307,718 
Occupancy
11,720,147 
11,370,223 
Other operating costs
35,062,833 
34,845,059 
General and administrative expenses
9,081,866 
9,265,432 
Pre-opening costs
405,448 
599,279 
Depreciation and amortization
13,115,072 
14,696,846 
Loss on asset disposals
310,536 
338,306 
Total operating expenses
160,221,884 
159,216,954 
Operating profit
5,240,728 
7,303,971 
Interest expense
(6,633,709)
(5,763,684)
Other income (expense), net
106,586 
(172,031)
Income (loss) from continuing operations before income taxes
(1,286,395)
1,368,256 
Income tax (provision) benefit
(18,997,756)
2,270,792 
Income (loss) from continuing operations
(20,284,151)
3,639,048 
Loss from discontinued operations before income taxes
(238,253)
(10,226,996)
Income tax benefit of discontinued operations
(64,328)
(585,467)
Loss from discontinued operations
(173,925)
(9,641,529)
Net loss
$ (20,458,076)
$ (6,002,481)
Basic earnings (loss) per share from:
 
 
Continuing operations (in dollars per share)
$ (0.76)
$ 0.14 
Discontinued operations (in dollars per share)
$ (0.01)
$ (0.37)
Basic net loss per share (in dollars per share)
$ (0.77)
$ (0.23)
Fully diluted earnings (loss) per share from:
 
 
Continuing operations (in dollars per share)
$ (0.76)
$ 0.14 
Discontinued operations (in dollars per share)
$ (0.01)
$ (0.37)
Fully diluted net loss per share (in dollars per share)
$ (0.77)
$ (0.23)
Weighted average number of common shares outstanding
 
 
Basic (in shares)
26,717,910 
26,491,549 
Diluted (in shares)
26,717,910 
26,491,549 
Consolidated Statements of Comprehensive Loss (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 25, 2016
Statement of Comprehensive Income [Abstract]
 
 
Net loss
$ (20,458,076)
$ (6,002,481)
Other comprehensive income (loss)
 
 
Unrealized changes in fair value of interest rate swaps, net of tax of ($335,371) and ($37,319)
651,014 
72,445 
Comprehensive loss
$ (19,807,062)
$ (5,930,036)
Consolidated Statements of Comprehensive Income (Loss) (Parentheticals) (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 25, 2016
Statement of Comprehensive Income [Abstract]
 
 
Unrealized changes in fair value of interest rate swaps, tax
$ (335,371)
$ (37,319)
Consolidated Statements of Stockholders' Equity (Deficit) (USD $)
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Balance at beginning of period at Dec. 27, 2015
$ 16,600,352 
$ 2,597 
$ 36,136,319 
$ (1,006,667)
$ (18,531,897)
Balance at beginning of period (in shares) at Dec. 27, 2015
 
26,298,725 
 
 
 
Adoption of ASU 2016-09 (Note 1)
268,000 
 
 
 
268,000 
Issuance of restricted shares (in shares)
 
398,164 
 
 
 
Forfeitures of restricted shares (in shares)
 
(84,817)
 
 
 
Shares effectively repurchased for required employee withholding taxes
(12,392)
(1)
(12,391)
 
 
Shares effectively repurchased for required employee withholding taxes (in shares)
 
(8,114)
 
 
 
Employee stock purchase plan
40,603 
40,599 
 
 
Employee stock purchase plan (in shares)
 
28,264 
 
 
 
Share-based compensation
435,855 
10 
435,845 
 
 
Other comprehensive income
72,445 
 
 
72,445 
 
Spin-Off of Bagger Dave's
(15,245,102)
 
(15,245,102)
 
Net income from continuing operations
3,639,048 
 
 
 
3,639,048 
Net loss from discontinued operations
(9,641,529)
 
 
 
(9,641,529)
Balance at end of period at Dec. 25, 2016
(4,110,720)
2,610 
21,355,270 
(934,222)
(24,534,378)
Balance at end of period (in shares) at Dec. 25, 2016
26,632,222 
26,632,222 
 
 
 
Issuance of restricted shares (in shares)
 
263,332 
 
 
 
Forfeitures of restricted shares (in shares)
 
(50,850)
 
 
 
Shares effectively repurchased for required employee withholding taxes
(62,149)
(2)
(62,147)
 
 
Shares effectively repurchased for required employee withholding taxes (in shares)
 
(22,716)
 
 
 
Employee stock purchase plan
65,200 
65,196 
 
 
Employee stock purchase plan (in shares)
 
37,137 
 
 
 
Share-based compensation
418,096 
13 
418,083 
 
 
Other comprehensive income
651,014 
 
 
651,014 
 
Net income from continuing operations
(20,284,151)
 
 
 
 
Net loss from discontinued operations
(173,925)
 
 
 
(173,925)
Balance at end of period at Dec. 31, 2017
$ (23,228,635)
$ 2,625 
$ 21,776,402 
$ (283,208)
$ (44,724,454)
Balance at end of period (in shares) at Dec. 31, 2017
26,859,125 
26,859,125 
 
 
 
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 25, 2016
Cash flows from operating activities
 
 
Net loss
$ (20,458,076)
$ (6,002,481)
Net loss from discontinued operations
173,925 
9,641,529 
Net income (loss) from continuing operations
(20,284,151)
3,639,048 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
Depreciation and amortization
13,115,072 
14,696,846 
Amortization of debt discount and loan fees
294,103 
238,784 
Amortization of gain on sale-leaseback
(131,617)
(128,782)
Loss on asset disposals
310,536 
338,306 
Share-based compensation
418,096 
435,845 
Deferred income taxes
18,943,427 
(2,270,792)
Changes in operating assets and liabilities that provided (used) cash
 
 
Accounts receivable
(376,864)
(28,915)
Inventory
109,241 
(102,225)
Prepaid and other assets
896,954 
8,527 
Intangible assets
(48,806)
(73,150)
Other long-term assets
48,217 
753,960 
Accounts payable
555,089 
(1,771,388)
Accrued liabilities
(1,357,970)
1,143,880 
Deferred rent
182,477 
107,737 
Net cash provided by operating activities of continuing operations
12,673,804 
16,987,681 
Net cash used in operating activities of discontinued operations
(173,925)
(5,863,807)
Net cash provided by operating activities
12,499,879 
11,123,874 
Cash flows from investing activities
 
 
Purchases of property and equipment
(4,687,242)
(12,499,507)
Net cash used in investing activities of continuing operations
(4,687,242)
(12,499,507)
Net cash used in investing activities of discontinued operations
(907,890)
Net cash used in investing activities
(4,687,242)
(13,407,397)
Cash flows from financing activities
 
 
Proceeds from issuance of long-term debt
4,650,965 
11,109,154 
Repayments of long-term debt
(12,116,623)
(16,134,717)
Payment of loan fees
(197,889)
Proceeds from employee stock purchase plan
65,200 
40,603 
Tax withholding for restricted stock
(62,149)
(12,392)
Capital infusion to discontinued component
(2,000,000)
Net cash used in financing activities
(7,462,607)
(7,195,241)
Net increase (decrease) in cash and cash equivalents
350,030 
(9,478,764)
Cash and cash equivalents, beginning of period
4,021,126 
13,499,890 
Cash and cash equivalents, end of period
$ 4,371,156 
$ 4,021,126 
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Diversified Restaurant Holdings, Inc. (“DRH”) is a restaurant company operating a single concept, Buffalo Wild Wings® (“BWW”). As one of the largest franchisee 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 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.

DRH and its wholly-owned subsidiaries (collectively, the “Company”), AMC Group, Inc. (“AMC”), AMC Wings, Inc. (“WINGS”), and AMC Real Estate, Inc. (“REAL ESTATE”) own and operate BWW restaurants located throughout Florida, Illinois, Indiana, Michigan and Missouri. The following organizational chart outlines the current corporate structure of DRH. A brief textual description of the entities follows the organizational chart. DRH is incorporated in Nevada.

drh10kgraphic.jpg

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

WINGS was formed on March 12, 2007 and serves as a holding company for our BWW restaurants. We are economically dependent on retaining our franchise rights with BWLD. The franchise agreements have specific initial term expiration dates ranging from December 2020 through June 2037, 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 December 2025 through June 2052. We believe we are in compliance with the terms of these agreements.

REAL ESTATE was formed on March 18, 2013 and serves as the holding company for any real estate properties owned by DRH. Currently, DRH does not own any real estate.

We follow accounting standards set by the Financial Accounting Standards Board ("FASB"). The FASB sets generally accepted accounting principles in the United States of America ("GAAP") that we follow to ensure we consistently report our financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification ("ASC").

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

For Variable Interest Entities ("VIE(s)"), we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIE. 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. See Note 3 to the accompanying notes to the consolidated financial statements for more details.

Segment Reporting

As of December 31, 2017, the Company has one operating and reportable segment.

Fiscal Year

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. Fiscal year 2017 ended on December 31, 2017 and was comprised of 53 weeks. Fiscal year 2016 ended on December 25, 2016 was comprised of 52 weeks.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and demand deposits in banks. The Company considers all highly-liquid investments purchased with original maturities of three months or less to be cash and cash equivalents. The Company, at times throughout the year, may, in the ordinary course of business, maintain cash balances in excess of federally-insured limits. Management does not believe the Company is exposed to any unusual risks on such deposits.

Accounts Receivable

At December 31, 2017, accounts receivable primarily consist of contractually determined receivables from BWLD for gift card reimbursements. At December 25, 2016, accounts receivable primarily consist of contractually determined receivables from BWLD for local media advertising reimbursements. Accounts receivable are stated at the amount management expects to collect. Balances that are outstanding after management has used reasonable collection efforts are written off with a corresponding charge to bad debt expense. There was no allowance for doubtful accounts necessary at December 31, 2017 and December 25, 2016.

Gift Cards

The Company records gift cards under a BWLD system-wide program. Gift cards sold are recorded as a gift card liability. When redeemed, the gift card liability account is offset by recording the transaction as revenue. At times, gift card redemptions can exceed amounts due to BWLD for gift card purchases resulting in an asset balance. Under this centralized system, any breakage would be recorded by Blazin' Wings, Inc., a subsidiary of BWLD, and is subject to the breakage laws in the state of Minnesota, where Blazin' Wings, Inc. is domiciled. The Company's gift card balance was an asset of $0.5 million and liability of $0.1 million as of December 31, 2017 and December 25, 2016, respectively.

Inventory

Inventory consists mainly of food and beverage products and is accounted for at the lower of cost or market using the first in, first out method of inventory valuation. Cash flows related to inventory sales are classified in net cash provided by operating activities in the Consolidated Statements of Cash Flows.

Prepaids and Other Long-Term Assets

Prepaid assets consist principally of prepaid insurance and contracts and are recognized ratably as operating expense over the period of future benefit. Other assets consist primarily of security deposits for operating leases and utilities.

Property and Equipment

Property and equipment are recorded at cost. Equipment and furniture and fixtures are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements, which include the cost of improvements funded by landlord incentives or allowances, are amortized using the straight-line method over the lesser of the term of the lease, without consideration of renewal options, or the estimated useful lives of the assets, which is typically five - 15 years. Maintenance and repairs are expensed as incurred. Upon retirement or disposal of assets, the cost and accumulated depreciation are eliminated from the respective accounts and the related gains or losses are credited or charged to earnings.

The Company capitalizes items associated with construction but not yet placed into service, known as construction in progress (“CIP”). Items capitalized include fees associated with the design, build out, furnishing of the restaurants, leasehold improvements, construction period interest (when applicable), equipment, and furniture and fixtures. Restaurant CIP is not amortized or depreciated until the related assets are placed into service. Items are placed into service according to their asset category when the restaurant is open for service.

Intangible Assets

Amortizable intangible assets consist of franchise fees, trademarks, non-compete agreements, favorable and unfavorable operating leases, and loan fees and are stated at cost, less accumulated amortization. Intangible assets are amortized on a straight-line basis over the estimated useful life, as follows: Franchise fees- 1020 years, Trademarks- 15 years, Non-compete- 3 years, Favorable and unfavorable leases - over the term of the respective leases and Loan fees - over the term of the respective loan.

Liquor licenses, if transferable, are deemed to have an indefinite life and are carried at the lower of fair value or cost. We identify potential impairments for liquor licenses by comparing the fair value with its carrying amount. If the fair value exceeds the carrying amount, the liquor licenses are not impaired. If the fair value of the asset is less than the carrying amount, an impairment charge is recorded. No impairments were recognized in fiscal years ended December 25, 2017 and December 27, 2016.

Impairment or Disposal of Long-Lived Assets

We review long-lived assets quarterly to determine if triggering events have occurred which would require a test to determine if the carrying amount of these assets may not be recoverable based on estimated future cash flows. Assets are reviewed at the lowest level for which cash flows can be identified, which is at the individual restaurant level. In the absence of extraordinary circumstances, restaurants are included in the impairment analysis after they have been open for two years. We evaluate the recoverability of a restaurant’s long-lived assets, including intangibles, leasehold improvements, furniture, fixtures, and equipment over the remaining life of the primary asset in the asset group, after considering the potential impact of planned operational improvements, marketing programs, and anticipated changes in the trade area. In determining future cash flows, significant estimates are made by management with respect to future operating results for each restaurant over the remaining life of the primary asset in the asset group. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset carrying amount exceeds its fair value based on our estimate of discounted future cash flows. The determination of asset fair value is also subject to significant judgment. During the years ended December 31, 2017 and December 25, 2016, there were no impairments of long-lived assets pertaining to continuing operations.

We account for exit or disposal activities, including restaurant closures, in accordance with ASC Topic 420, Exit or Disposal Cost Obligations. Such costs include the cost of disposing of the assets as well as other facility-related expenses from previously closed restaurants. These costs are generally expensed as incurred. Additionally, at the date we cease using a property under an operating lease, we record a liability for the net present value of any remaining lease obligations, net of estimated sublease income. Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of sublease income are recorded in the period incurred.

Goodwill

Goodwill is not amortized and represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill is subject to an annual impairment analysis or more frequently if indicators of impairment exist. At both December 31, 2017 and December 25, 2016, we had goodwill of $50.1 million. The goodwill is assigned to the Company's Buffalo Wild Wings reporting unit, which, due to the Spin-Off of Bagger Dave's on December 25, 2016, represents the Company's only reporting unit.

The Company assesses goodwill for impairment on an annual basis during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company’s assessment first reviews relevant qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we assess relevant events and circumstances. If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the quantitative impairment test would be necessary. Conversely, if it is not more likely than not that the fair value of the reporting unit is less than the carrying amount, further action would not be required.

We early adopted Accounting Standards Update ("ASU") 2017-04, Topic 350: Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment ("ASU 2017-04") as of September 25, 2017, the beginning of our fourth quarter. ASU 2017-04 requires goodwill impairment to be measured as the excess of the carrying value over the fair value of the reporting unit, not to exceed the carrying amount of goodwill. Previously goodwill impairment was measured as the excess of carrying value over the implied fair value of goodwill. The carrying value of our reporting unit as of September 25, 2017 was negative, and therefore goodwill was not impaired as of December 31, 2017. As a result of our qualitative assessment as of December 25, 2016, we determined it was not more likely than not that the fair value of the reporting unit was below the carrying value and therefore no impairment was calculated.

Deferred Rent

Certain operating leases provide for minimum annual payments that increase over the life of the lease. Typically, our operating leases contain renewal options under which we may extend the initial lease terms for periods of five to 10 years. The aggregate minimum annual payments are expensed on a straight-line basis commencing at the start of our construction period and extending over the term of the related lease, including option renewals as deemed reasonably assured. The amount by which straight-line rent exceeds actual lease payment requirements in the early years of the lease is accrued as deferred rent liability and reduced in later years when the actual cash payment requirements exceed the straight-line expense. The Company also accounts, in its straight-line computation, for the effect of any "rental holidays", "free rent periods", and "landlord incentives or allowances".

Deferred Gains

Deferred gains from sale leaseback transactions are recognized into income over the life of the related operating lease agreements.

Revenue Recognition

Revenues from food, beverage and merchandise sales are recognized and generally collected at the point of sale. All sales taxes are presented on a net basis and are excluded from revenue.

Advertising

Advertising expenses associated with contributions to the BWLD advertising fund and regional cooperatives (between 3.15% and 3.50% of total net sales) are recorded as operating expenses as contributed, while all other advertising expenses are recorded in general and administrative expenses as incurred. Advertising and co-op expenses of continuing operations of $5.4 million and $5.6 million are included in other operating costs in the Consolidated Statements of Operations and advertising expense of $0.8 million and $1.1 million are included in general and administrative expenses in the Consolidated Statements of Operations for the years ended December 31, 2017 and December 25, 2016, respectively. Advertising expenses in discontinued operations of $0 and $1.1 million are presented as such in the Consolidated Statements of Operations for the years ended December 31, 2017 and December 25, 2016, respectively.

Pre-opening Costs

Pre-opening costs are those costs associated with opening new restaurants and will vary based on the number of new locations opening and under construction. Pre-opening costs typically consist of manager salaries, relocation costs, supplies, recruiting expenses, certain marketing costs and costs associated with team member training. The Company also reclassifies labor costs that exceed the historical average for the first three months of restaurant operations that are attributable to training. These costs are expensed as incurred. Pre-opening costs in continuing operations were $0.4 million and $0.6 million for the years ended December 31, 2017 and December 25, 2016, respectively. Excess labor cost incurred after restaurant opening and included in pre-opening cost were approximately $0.1 million and $0.3 million for the years ended December 31, 2017 and December 25, 2016, respectively.

Income Taxes

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

The Company applies the provisions of ASC Topic 740, Income Taxes, regarding the accounting for uncertainty in income taxes. 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 December 31, 2017 and December 25, 2016.

Earnings Per Common Share

Earnings per share are calculated under the provisions of FASB ASC 260, Earnings per Share, which requires a dual presentation of "basic" and "diluted" earnings per share on the face of the Consolidated Statements of Operations. Basic earnings per common share excludes dilution and is computed by dividing the net earnings available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share include dilutive common stock equivalents consisting of stock options determined by the treasury stock method. Restricted stock awards contain non-forfeitable rights to dividends, making such awards participating securities. The calculation of basic and diluted earnings per share uses an earnings allocation method to consider the impact of restricted stock.

Share-based Compensation

The Company estimates the fair value of stock option awards utilizing the Black-Scholes pricing model. The fair value of the awards is amortized as compensation expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period. The fair value of restricted shares is equal to the number of restricted shares issued times the Company’s stock price on the date of grant and is amortized as compensation expense on a straight-line basis over the service period of the award.

Concentration Risks

Approximately 76.9% and 77.4% of the Company's continuing revenues for the years ended December 31, 2017 and December 25, 2016, respectively, were generated from food and beverage sales from restaurants located in the Midwest region. The remaining 23.1% and 22.6% of the Company's continuing revenues for the years ended December 31, 2017 and December 25, 2016, respectively, were generated from food and beverage sales from restaurants located in Florida.

Use of Estimates

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

Interest Rate Swap Agreements

The Company utilizes interest rate swap agreements with Citizens Bank, N.A. (“Citizens”) and other banks to fix interest rates on a portion of the Company’s portfolio of variable rate debt, which reduces exposure to interest rate fluctuations. Our derivative financial instruments are recorded at fair value on the Consolidated Balance Sheets. The effective portion of changes in the fair value of derivatives which qualify for hedge accounting is recorded in other comprehensive income and is recognized in the Consolidated Statements of Operations when the hedged item affects earnings. Ineffective portion of the change in fair value of a hedge would be recognized in income immediately. 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 associated with the Company’s current debt agreements qualify for hedge accounting. As such, the Company records the change in the fair value of its swap agreements as a component of accumulated other comprehensive income (loss), net of tax. The Company records the fair value of its interest swaps on the Consolidated Balance Sheets in other long-term assets or other liabilities depending on the fair value of the swaps. See Note 7 and Note 14 for additional information on the interest rate swap agreements.

Blazin' Rewards® Loyalty Program

In 2017, the Company completed the implementation of a customer loyalty program, Blazin' Rewards®. The program allows members to earn points when they make purchases at our restaurants. The Company developed an estimate for the value of each point based on historical data. We record the fair value, net of estimated breakage, of the points as a reduction of restaurant sales and establish a liability within deferred revenue as the points are earned. Breakage is the percentage of points earned that are not expected to be redeemed. The revenue associated with the points is recognized upon the redemption of the points. Points generally expire after six months of inactivity.

Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (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 May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. We do not believe the updated requirements will materially impact our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Topic 230: Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 clarifies current GAAP that is either unclear or does not include specific guidance on a number of specific issues. The amendments set forth are an improvement to GAAP because they provide guidance for each issue and reduce the current and potential future diversity in practice. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the pending adoption of ASU 2016-15 and the impact it will have on our consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, Leases. 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.

In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09 Revenue with Contracts from Customers (Topic 606). 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 March 2016, the FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products. ASU 2016-04 provides specific guidance for the de-recognition of prepaid stored-value product liabilities. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 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 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing." ASU 2016-10 provides clarification on the subjects of identifying performance obligations and licensing implementation 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 will adopt these standards upon their effective date. The Company has substantially completed its evaluation of the standard, and our assessment concludes that the new revenue recognition standard will not materially impact the recognition of restaurant sales, our primary source of revenue, or any other revenue stream. Additionally, this guidance will require us to enhance our disclosures, including disclosing performance obligations to customers arising from certain promotional activity, such as our customer loyalty program which is not material as of December 31, 2017. The Company is finalizing our conclusion of the disclosures surrounding disaggregated revenue, and will complete the assessment prior to filing our first quarter Form 10-Q in 2018. With respect to the transition method for adoption, we will adopt this standard using the modified retrospective approach.

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 January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-04, Topic 350: Intangibles - Goodwill and Other: 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 units 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 2016-09, Topic 718: Compensation - Stock Compensation: 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.
DISCONTINUED OPERATIONS (Notes)
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 has lapsed and no additional funding has been 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. See Note 9 for additional information related to income taxes.

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 in certain areas, including information technology, human resources and real estate, in exchange for a fee based on a rate-per-hour of service.

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 year ended December 25, 2016 as well as activity related to Bagger Dave's for the year ended December 31, 2017 have been presented as discontinued operations. There was no gain or loss on the transaction recorded.

Consolidated Statements of Cash Flows - Bagger Dave's cash flows from operating and investing activities for the year ended December 25, 2016 as well as activity related to Bagger Dave's for the year ended December 31, 2017 have been presented separately on the face of the cash flow statements. The Bagger Dave's cash flows from financing activities for the year ended December 25, 2016 have not been separately reported on the consolidated statements of cash flows since there was only one financing function for both entities.

The following are major classes of line items constituting pre-tax loss from discontinued operations:
 
 
Fiscal Years Ended
 
 
December 31, 2017
 
December 25, 2016
Revenue
 
$

 
$
20,741,427

Restaurant operating costs (exclusive of depreciation and amortization)
 
95,536

 
(21,436,377
)
General and administrative expenses
 
(334,529
)
 
(2,881,467
)
Depreciation and amortization
 
740

 
(3,353,194
)
Pre-opening costs
 

 
(362,064
)
Other income
 

 
11,066

Impairment and loss on asset disposals
 

 
(2,946,387
)
Loss from discontinued operations before income taxes
 
(238,253
)
 
(10,226,996
)
Income tax benefit
 
64,328

 
585,467

 
 
 
 
 
Total loss from discontinued operations
 
$
(173,925
)
 
$
(9,641,529
)


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.

The following table summarizes the Company’s accrual activity related to facility closures during the fiscal years ended December 31, 2017 and December 25, 2016:
 
Fiscal 2017
 
Fiscal 2016
Beginning of the year
$
107,153

 
$
1,247,186

Charges

 

Payments/utilizations/other
(107,153
)
 
(1,140,033
)
End of the year
$

 
$
107,153



The closure liability of $0.1 million was retained by the Company after the Spin-Off of Bagger Dave's, as it was responsible for certain ongoing lease payments associated with the closures.

Based on impairment indicators that existed in the fourth quarter of 2016, the Company performed an impairment analysis on certain long-lived assets relating to Bagger Dave's and recorded an impairment charge of $3.5 million related to seven locations where the carrying amount of the assets was not considered recoverable based on the estimated future cash flows of the restaurants. The impairment charge is recorded in discontinued operations.

The following is a summary of the expenses recognized in discontinued operations in the Consolidated Statement of Operations during the years ended December 31, 2017 and December 25, 2016 related to the restaurant closures and impairment of property and equipment:
Description
Fiscal 2017
 
Fiscal 2016
Property and equipment impairments
$

 
$
3,548,515



During 2016, Bagger Dave's recorded other asset disposal gains of $0.6 million in discontinued operations.

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.
UNCONSOLIDATED VARIABLE INTEREST ENTITIES (Notes)
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 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 the VIE.

Lease Guarantees

At December 31, 2017 the Company is a guarantor for 16 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 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 in the amount of $0.3 million, which is included in other liabilities on the Consolidated Balance Sheet as of December 31, 2017 and December 25, 2016. No liability had previously been recorded before the Spin-Off, 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 December 31, 2017 and December 25, 2016, no loss under the guarantees was probable because all but one 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.

The Company has determined that its maximum exposure resulting from the lease guarantees includes approximately $8.4 million of future minimum lease payments plus potential additional payments to satisfy maintenance, property tax and insurance requirements under the leases as of December 31, 2017. 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 1 month to 12 years as of December 31, 2017. 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. Since 2015, 10 Bagger Dave’s locations with DRH lease guarantees were closed. New tenants were found to step into the Company’s lease obligations for 8 of these locations in 3 to 14 months from the date of closure. Over this time, 7 guarantees expired or terminated, and 3 remain obligations of the Company. 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 December 31, 2017:
Location of lease
Status of location
Guarantee expiry date
Future guaranteed lease payments
Bloomfield, MI 1
Open
01/14/18
3,750

Shelby Township, MI 1
Open
01/31/18
6,482

West Chester Township, MI
Open
02/01/18
7,083

Woodhaven, MI
Closed / re-leased
11/30/18
68,017

Traverse City, MI 1
Open
01/31/19
99,167

Fort Wayne, IN
Open
01/31/19
91,121

Grand Blanc, MI
Open
01/31/20
147,167

Centerville, MI
Open
11/30/20
318,079

Chesterfield Township, MI
Open
12/31/20
195,000

E. Lansing, MI 1
Open
09/10/21
75,000

Birch Run, MI
Open
12/31/24
667,875

Berkley, MI
Open
06/08/29
970,920

Cascade Township, MI
Open
06/08/29
891,054

Avon, IL
Closed / re-leased
06/30/29
1,452,204

Greenwood, IL
Closed / re-leased
06/30/29
1,503,360

Canton, MI 1
Open
06/30/30
1,934,929

Totals
 
 
$
8,431,208



1 - Location has closed subsequent to December 31, 2017.
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET
 
Property and equipment are comprised of the following:
 
 
December 31, 2017
 
December 25, 2016
Equipment
 
$
30,252,867

 
$
29,426,476

Furniture and fixtures
 
7,444,792

 
7,275,923

Leasehold improvements
 
64,936,413

 
63,449,082

Restaurant construction in progress
 
161,942

 
94,595

Total
 
102,796,014

 
100,246,076

Less accumulated depreciation
 
(54,781,971
)
 
(43,616,045
)
Property and equipment, net
 
$
48,014,043

 
$
56,630,031



Depreciation expense for the year ended December 31, 2017 was 13.0 million, all of which related to continuing operations. Depreciation expense for the year ended December 25, 2016 was $18.1 million, of which $14.7 million related to continuing operations and $3.4 million related to discontinued operations.
INTANGIBLE ASSETS
INTANGIBLE ASSETS
INTANGIBLE ASSETS
 
Intangible assets are comprised of the following: 
 
 
December 31, 2017
 
December 25, 2016
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
 
(907,269
)
 
(718,517
)
Amortized intangible assets, net
 
1,181,860

 
1,370,612

 
 
 
 
 
Unamortized intangible assets
 
 
 
 
Liquor licenses
 
1,256,327

 
1,295,752

Total intangible assets, net
 
$
2,438,187

 
$
2,666,364



Amortization expense for both years ended December 31, 2017 and December 25, 2016 was $0.1 million. Amortization of favorable/unfavorable leases and loan fees are reflected as part of occupancy and interest expense, respectively. Loan fees written off to interest expense during both years ended December 31, 2017 and December 25, 2016 was $0.1 million.

Based on the current intangible assets and their estimated useful lives, future intangible-related expense for the next five years and thereafter is projected as follows:
Year
Amount
2018
$
173,294

2019
172,735

2020
135,499

2021
86,781

2022
84,435

Thereafter
529,116

Total
$
1,181,860



The aggregate weighted-average amortization period for intangible assets is 8.4 years.
OTHER ACCRUED LIABILITIES
OTHER ACCRUED LIABILITIES
OTHER ACCRUED LIABILITES
 
 
December 31, 2017
 
December 25, 2016
Sales tax payable
 
$
906,410

 
$
816,215

Accrued interest
 
481,431

 
442,976

Accrued royalty fees
 
179,114

 
129,621

Accrued property taxes
 
69,970

 
490,809

Accrued loyalty rewards
 
439,106

 

Other
 
328,911

 
762,648

Total accrued other liabilities
 
$
2,404,942

 
$
2,642,269

LONG-TERM DEBT
LONG-TERM DEBT
LONG-TERM DEBT

Long-term debt consists of the following obligations:
 
 
December 31, 2017
 
December 25, 2016
$120.0 million term loan - the rate at December 31, 2017 and December 25, 2016 was 4.87% and 4.12%, respectively.
 
$
89,698,616

 
$
99,698,616

$30.0 million development line of credit, converted to $18.2 million facility term loan in December 2016 - the rate at December 31, 2017 and December 25, 2016 was 4.87% and 4.21%, respectively.
 
16,682,853

 
18,199,476

$5.0 million revolving line of credit - the rate at December 31, 2017 and December 25, 2016 was 5.11% and 6.25%, respectively.
 
5,000,000

 
4,000,000

$5.0 million development line of credit - the rate at December 31, 2017 was 5.00%.
 
3,050,965

 

Unamortized discount and debt issuance costs
 
(503,271
)
 
(712,072
)
 
 
 
 
 
Total debt
 
113,929,163

 
121,186,020

 
 
 
 
 
Less current portion
 
(11,440,433
)
 
(11,307,819
)
 
 
 
 
 
Long-term debt, net of current portion
 
$
102,488,730

 
$
109,878,201



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 (see amendment details immediately following this paragraph) revolving line of credit (the “RLOC”).

On December 23, 2016, the Company entered into an amendment agreement 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 December 31, 2017, $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, plus interest, through maturity on June 29, 2020. 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 debt 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 $503,271 and $712,072, at December 31, 2017 and December 25, 2016, respectively. The unamortized portion of capitalized debt issuance costs related to the DLOC and RLOC totaled $244,336 and $159,033, at December 31, 2017 and December 25, 2016, 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.

Based on the long-term debt terms that existed at December 31, 2017, the scheduled principal maturities, net of unamortized discount, for the next five years and thereafter are summarized as follows:
 
Amount
2018
$
11,440,433

2019
11,573,284

2020
90,915,446

2021

2022

Thereafter

Total
$
113,929,163



Interest expense was $6.6 million and $5.8 million for the years ended December 31, 2017 and December 25, 2016, respectively.

The current debt agreement contains various customary financial covenants generally based on the performance of the Company. The financial covenants consist of a minimum required consolidated debt service coverage ratio and a maximum permitted consolidated lease-adjusted leverage ratio. On June 30, 2017, the Company entered into an amendment agreement for purposes of revising the maximum lease adjusted leverage ratio and revising certain definitions impacting the calculation of the ratio. On February 28, 2018, the Company entered into an amendment agreement for purposes of modifying the maximum permitted consolidated lease-adjusted leverage ratio and the minimum required consolidated debt service coverage ratio, commencing with the fiscal quarter ending April 1, 2018 and through the quarter ending December 29, 2019. As of December 31, 2017 the Company was not in compliance with the loan covenants but, pursuant to the amendment dated February 28, 2018, the covenants for the fiscal quarter ended December 31, 2017 were waived.

At December 31, 2017, 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. See Note 1 and Note 14 for additional information pertaining to interest rate swaps.

The following tables summarize the fair values of derivative instruments designated as cash flow hedges which were outstanding:
 
 
 
December 31, 2017
Interest rate swaps
Rate
Expires
Notional amounts
 
Derivative assets
 
Derivative liabilities
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

 
 
 
December 25, 2016
Interest rate swaps
Rate
Expires
Notional amounts
 
Derivative assets
 
Derivative liabilities
April 2012
1.4%
April 2019
$
5,333,333

 
$

 
$
21,037

October 2012
0.9%
October 2017
2,357,143

 

 
723

July 2013
1.4%
April 2018
4,761,905

 

 
18,949

May 2014
1.5%
April 2018
9,285,714

 

 
58,359

January 2015
1.8%
December 2019
21,119,048

 

 
271,144

August 2015
2.3%
June 2020
49,696,875

 

 
1,045,279

Total
 
 
$
92,554,018

 
$

 
$
1,415,491

SHARE-BASED COMPENSATION
STOCK-BASED COMPENSATION
SHARE-BASED COMPENSATION

The Company established a Stock Incentive Plan in 2011, and on July 13, 2017, the Company's shareholders approved a new stock incentive plan - the Stock Incentive Plan of 2017 (“Stock Incentive Plan”) to attract and retain directors, consultants, and team members and to align their interests with the interests of the Company’s shareholders through the opportunity for increased stock ownership. 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 by way of stock options and/or restricted stock. Stock options must be awarded at exercise prices at least equal to or greater than 100.0% of the fair market value of the shares on the date of grant. The options will expire no later than 10 years from the date of grant, with vesting terms to be defined at grant date, ranging from a vesting schedule based on performance to a vesting schedule that extends over a period of time as selected by the Compensation Committee of the Board of Directors (the “Committee”) or another committee as determined by the Board of Directors. The Committee also determines the grant, issuance, retention, and vesting timing and conditions of awards of restricted stock. The Committee may place limitations, such as continued employment, passage of time, and/or performance measures, on restricted stock. Awards of restricted stock may not provide for vesting or settlement in full of restricted stock over a period of less than one year from the date the award is made.

Restricted share awards

During fiscal 2017 and 2016, restricted shares were issued to certain team members at a weighted-average grant date fair value of $2.31 and $1.47, respectively. 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 Committee. Unrecognized share-based compensation expense of $0.8 million and $0.5 million at December 31, 2017 and December 25, 2016, respectively, will be recognized over the remaining weighted-average vesting period of 1.7 years. The total fair value of shares vested during years ended December 31, 2017 and December 25, 2016 was $0.4 million and $0.3 million, respectively. Under the Stock Incentive Plan of 2017, there are 2.3 million shares available for future awards at December 31, 2017.

The following table presents the restricted stock transactions for fiscal 2017:
 
Number of Restricted Stock Shares
Unvested, December 25, 2016
473,391

Granted
263,332

Vested
(132,157
)
Vested shares tax portion
(22,716
)
Forfeited
(50,850
)
Unvested, December 31, 2017
531,000


The following table presents the restricted stock transactions for fiscal 2016:
 
Number of Restricted Stock Shares
Unvested, December 27, 2015
241,124

Granted
398,164

Vested
(72,966
)
Vested shares tax portion
(8,114
)
Forfeited
(84,817
)
Unvested, December 25, 2016
473,391


As a result of the Spin-Off of Bagger Dave’s, all restricted shares previously awarded to Bagger Dave’s employees were vested on a pro rata basis for time served through December 25, 2016 and were otherwise forfeited.

On July 30, 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 are fully vested and originally expired six years from issuance. On August 13, 2015, 30,000 shares were exercised at a price of $2.50 per share. The intrinsic value of the options exercised was $6,300. 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 December 31, 2017, 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 December 31, 2017 and December 25, 2016.

Employee stock purchase plan

The Company also reserved 250,000 shares of common stock for issuance under the Employee Stock Purchase Plan (“ESPP”). The ESPP is available to team members subject to employment eligibility requirements. Participants may purchase common stock at 85.0% of the lesser of the start or end price for the offering period. The plan has four offering periods, each start/end dates coincide with the fiscal quarter and are awarded on the last day of the offering period. During the years ended December 31, 2017 and December 25, 2016 we issued 37,137 and 28,264 shares, respectively. Under the ESPP, there are 147,188 shares available for future purchase at December 31, 2017.

Share-based compensation

Share-based compensation of $0.4 million was recognized during both years ended December 31, 2017 and December 25, 2016 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.

Preferred stock

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 December 31, 2017. 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.
INCOME TAXES
INCOME TAXES
INCOME TAXES

The Tax Cuts and Jobs Act (the Tax Act) was signed into law on December 22, 2017. The Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. We recorded a charge of $3.1 million in deferred income tax expense for the re-measurement of our net deferred tax asset at the 21% rate. The Tax Act also provides for acceleration of depreciation for certain assets placed into service after September 27, 2017, as well as prospective changes beginning in 2018, including additional limitations on deductibility of executive compensation, interest and employee meal benefits. Upon completion of our 2017 U.S. income tax return in 2018 we may identify additional re-measurement adjustments to our recorded deferred tax assets. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of December 31, 2017, the Company recognized the provisional effects of the enactment of the Tax Legislation for which measurement could be reasonably estimated. As the impact is based on currently available information and interpretations, which are continuing to evolve, the impact should be considered provisional. We will continue to analyze additional information and guidance related to the Tax Act as supplemental legislation, regulatory guidance or evolving technical interpretations become available. The final impacts may differ from the recorded amounts as of December 31, 2017. Pursuant to SAB 118, any adjustments to the provisional amounts recorded by the Company as of December 31, 2017 that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined.

The allocation of income taxes (benefit) for the fiscal year ended December 31, 2016 was determined based on pretax income and the outcome of a restructuring completed prior to the Spin-Off which effectively triggered a tax status change of the legal entities making up the Bagger Dave's business in a manner which enables the continuing business parent entity to retain the majority of the tax benefits from losses and credits. Following the status change, the Company contributed all of the hard assets and liabilities of the Bagger Dave's entities into a newly formed entity, Bagger Dave's Burger Tavern, Inc., the stock of which was ultimately spun-off to shareholders. The income tax benefit allocated to discontinued operations for 2016 related to benefits generated during the period between the date that the Company contributed the hard assets and liabilities of the Bagger Dave's entities to Bagger Dave's Burger Tavern, Inc. and the date that the Spin-Off was completed. A valuation allowance reserve was deemed necessary for the net deferred tax assets of Bagger Dave's Burger Tavern, Inc., and the resulting deferred tax expense was allocated to continuing operations as required by ASC 740.

The income tax provision (benefit) from continuing operations consists of the following components for the fiscal years ended December 31, 2017 and December 25, 2016:
 
 
Fiscal Years Ended
 
 
December 31, 2017
 
December 25, 2016
Federal:
 
 
 
 
Current
 
$

 
$
19,911

Deferred
 
17,346,134

 
(1,823,443
)
State:
 
 
 
 
Current
 
(10,000
)
 
(81,500
)
Deferred
 
1,661,622

 
(385,760
)
Income tax provision (benefit)
 
$
18,997,756

 
$
(2,270,792
)


The provision (benefit) for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income (loss) before income taxes. The items causing this difference are as follows:
 
 
Fiscal Years Ended
 
 
December 31, 2017
 
December 25, 2016
Income tax expense (benefit) at federal statutory rate
 
$
(437,374
)
 
$
465,207

State income tax
 
1,651,622

 
132,740

Permanent differences
 
506,867

 
70,206

Tax credits
 
(1,807,523
)
 
(1,748,632
)
Benefit resulting from restructuring
 

 
(3,016,513
)
Change in valuation allowance
 
15,948,273

 
1,826,200

Rate difference - reduction to 21%
 
3,135,891

 

Income tax provision (benefit)
 
$
18,997,756

 
$
(2,270,792
)


In accordance with the provisions of ASC 740, a valuation allowance is established when it is more likely than not that some portion of the deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. We consider the reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2017. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. As a result of this evaluation, as of December 31, 2017, a valuation allowance of $15.9 million has been recorded because the Company is unable to assert that realization of the deferred tax asset is more likely than not. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income increase or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

On December 25, 2016 we completed the Spin-Off of Bagger Dave’s, which had previously generated significant pre-tax losses. After the Spin-Off, the majority of the net deferred tax assets were retained by the Company, which in its continuing operations had a history of profitability and was expected to continue to generate pre-tax income in the future. This expected operating performance combined with the planned opening of additional BWW restaurants was expected provide future taxable income that would enable the Company to utilize the tax benefits prior to their expirations. Given this information, there was no valuation allowance recorded for the fiscal year ended December 25, 2016. While there was no allowance recorded against the deferred tax assets of the continuing operations, the Company incurred a one-time charge against the benefit for income taxes of $1.8 million. This charge is the result of certain deferred tax assets relating to discontinued operations that were determined to be unrealizable by Bagger Dave's and is allocable to continuing operations as required by ASC 740.

Due to the restructuring involving a tax status change that occurred prior to the Spin-Off, the continuing operations retained tax benefits that were generated by discontinued operations amounting to $3.0 million for the fiscal year ended December 25, 2016.

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. Significant components of the Company's deferred income tax assets and liabilities are summarized as follows:
 
 
December 31, 2017
 
December 25, 2016
Deferred tax assets:
 
 
 
 
Net operating loss carry-forwards
 
$
6,798,685

 
$
11,223,494

Deferred rent expense
 
549,540

 
752,897

Start-up costs
 
81,962

 
129,152

Tax credit carry-forwards
 
8,366,915

 
6,559,392

Interest rate swaps
 
90,112

 
481,267

Sale leaseback deferred gain
 
314,598

 
629,924

Share-based compensation
 
218,853

 
239,925

Accrued closure liabilities
 

 
36,432

Other
 
296,721

 
967,812

Total deferred tax assets
 
16,717,386

 
21,020,295

 
 

 
 
Deferred tax liabilities:
 
 
 
 
Tax depreciation in excess of book
 
881,810

 
2,366,739

Goodwill amortization in excess of book
 
2,647,173

 
2,402,628

Total deferred tax liabilities
 
3,528,983

 
4,769,367

 
 
 
 
 
Net deferred income tax asset, before valuation allowance
 
13,188,403

 
16,250,928

Valuation allowance on net deferred income tax assets
 
(15,948,273
)
 

Net deferred income tax assets (liabilities)
 
$
(2,759,870
)
 
$
16,250,928



As of December 31, 2017 and December 25, 2016, the Company has available federal and state net operating loss carryforwards of approximately $32.6 million and $33.0 million, respectively. General business tax credits of $8.4 million will expire between 2028 and 2037.

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 December 31, 2017.

The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions, and is subject to U.S. Federal, state, and local income tax examinations for tax years 2013 through 2016. The Company is currently under IRS exam for the 2014 fiscal year.
OPERATING LEASES
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 $8.8 million and $8.7 million for the fiscal years ended December 31, 2017 and December 25, 2016, 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 December 31, 2017 are summarized as follows:
Year
Amount
2018
$
8,947,232

2019
8,249,477

2020
8,170,861

2021
7,342,901

2022
6,566,555

Thereafter
27,162,972

Total
$
66,439,998

COMMITMENTS AND CONTINGENCIES
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 $8.3 million and $8.3 million in royalty expense for the fiscal years ended December 31, 2017 and December 25, 2016, respectively. Advertising fund contribution expenses were $5.4 million and $5.5 million for the fiscal years ended December 31, 2017 and December 25, 2016, 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 $0.3 million to $0.8 million depending on an individual restaurant's needs.

401(k) Plan
In 2017 and 2016, we had a defined contribution 401(k) plan whereby eligible team members could contribute wages in accordance with the provisions of the plan. Each year the Company considers a discretionary contribution to the 401(k) plan. For fiscal 2017, the match has not been determined. For 2016, the discretionary match was 100.0% of 2.0% contributed, which equated to $0.2 million.

Legal Proceedings
In August 2016, the Company and A Sure Wing, LLC settled a collective action that was filed on December 18, 2015 against AMC Wings, Inc. and the Company in the U.S. District Court for the Southern District of Illinois by plaintiffs, David, et. al. A Sure Wing, LLC, the seller of the 18 St. Louis BWW restaurants acquired by the Company on June 29, 2015, was also named as a defendant. Plaintiffs primarily alleged that former and current tipped workers at the above-mentioned companies were assigned to perform tasks outside the scope of their tipped positions, in violation of Illinois and federal law. The Company filed an indemnity claim against A Sure Wing, LLC and received a reciprocal indemnity claim from A Sure Wing, LLC.

Additionally, 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.
EARNINGS PER COMMON SHARE
EARNINGS PER COMMON SHARE
EARNINGS PER COMMON SHARE
 
The following is a reconciliation of basic and fully diluted earnings per common share for the fiscal years ended December 31, 2017 and December 25, 2016:
 
 
December 31, 2017
 
December 25, 2016
Income (loss) from continuing operations
 
$
(20,284,151
)
 
$
3,639,048

Loss from discontinued operations
 
(173,925
)
 
(9,641,529
)
Net loss
 
$
(20,458,076
)
 
$
(6,002,481
)
 
 
 
 
 
Weighted-average shares outstanding
 
$
26,717,910

 
$
26,491,549

Effect of dilutive securities
 

 

Weighted-average shares outstanding - assuming dilution
 
$
26,717,910

 
$
26,491,549

 
 
 
 
 
Earnings per common share from continuing operations
 
$
(0.76
)
 
$
0.14

Earnings per common share from discontinued operations
 
(0.01
)
 
(0.37
)
Earnings per common share
 
$
(0.77
)
 
$
(0.23
)
 
 
 
 
 
Earnings per common share - assuming dilution - from continuing operations
 
$
(0.76
)
 
$
0.14

Earnings per common share - assuming dilution - from discontinued operations
 
(0.01
)
 
(0.37
)
Earnings per common share - assuming dilution
 
$
(0.77
)
 
$
(0.23
)


For the year ended December 31, 2017 and December 25, 2016, 531,000 and 473,391 shares, respectively, of unvested restricted stock were excluded from the calculation of diluted earnings per share because such shares were anti-dilutive.
SUPPLEMENTAL CASH FLOWS INFORMATION
SUPPLEMENTAL CASH FLOWS INFORMATION
SUPPLEMENTAL CASH FLOWS INFORMATION

Other Cash Flows Information
Cash paid for interest was $6.3 million and $5.5 million during the years ended December 31, 2017 and December 25, 2016, respectively. Cash paid for income taxes was $0 and $0.1 million during the years ended December 31, 2017 and December 25, 2016, respectively.

Supplemental Schedule of Non-Cash Operating, Investing, and Financing Activities
Noncash investing activities for property and equipment not yet paid as of December 31, 2017 and December 25, 2016, was $0.1 million each.
FAIR VALUE OF FINANCIAL INSTRUMENTS
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 December 31, 2017 and December 25, 2016, respectively, our financial instruments consisted of cash and cash equivalents; including 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 market observable inputs including yield curves and the value associated with counterparty credit risk. Our interest rate swaps are classified as a Level 2 measurement as these securities are not actively traded in the market, but are observable based on transactions associated with bank loans with similar terms and maturities. See Note 1 and Note 7 for additional information pertaining to interest rates swaps.

The fair value of our lease guarantee liability is 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 December 31, 2017 and December 25, 2016, our total debt was approximately $113.9 million and $121.2 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 fiscal years ended December 31, 2017 and December 25, 2016, respectively.

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
)

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 25, 2016:
FAIR VALUE MEASUREMENTS
Description
 
Level 1
 
Level 2
 
Level 3
 
Asset / (Liability) Total
Cash equivalents
 
$

 
$
(1,415,491
)
 
$

 
$
(1,415,491
)
Interest rate swaps
 

 
(306,000
)
 

 
(306,000
)
Total
 
$

 
$
(1,721,491
)
 
$

 
$
(1,721,491
)
ACCUMULATED OTHER COMPREHENSIVE LOSS
ACCUMULATED OTHER COMPREHENSIVE LOSS
ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table summarizes each component of Accumulated Other Comprehensive Loss ("OCL"):
Year Ended December 31, 2017
 
 
Interest Rate
Swaps
Beginning balance
 
$
(934,222
)
Gain recorded to other comprehensive income
 
986,385

Tax expense
 
(335,371
)
Other comprehensive income
 
651,014

Accumulated OCL
 
$
(283,208
)

Year Ended December 25, 2016
 
 
Interest Rate
Swaps
Beginning balance
 
$
(1,006,667
)
Gain recorded to other comprehensive loss
 
109,764

Tax expense
 
(37,319
)
Other comprehensive income
 
72,445

Accumulated OCL
 
$
(934,222
)
SUMMARY QUARTERLY FINANCIAL DATA (unaudited)
SUMMARY QUARTERLY FINANCIAL DATA (unaudited)
SUMMARY QUARTERLY FINANCIAL DATA (unaudited)
 
 
Fiscal Quarters
 
 
 
March 26,
2017
 
June 25,
2017
 
September 24,
2017
 
December 31,
2017
 
Revenue
 
$
44,337,964

 
$
39,934,602

 
$
39,262,940

 
$
41,927,106

 
Operating profit (loss)
 
2,366,631

 
721,263

 
320,479

 
1,832,355

 
Income (loss) before income taxes
 
817,844

 
(895,903
)
 
(1,476,397
)
 
268,061

 
Net income (loss) from continuing operations
 
$
795,580

 
$
(291,343
)
 
$
(543,240
)
 
$
(20,245,148
)
1 
Net income (loss) from discontinued operations
 
$
35,540

 
$
(117,747
)
 
$
(15,154
)
 
$
(76,564
)
 
Net income (loss)
 
$
831,120

 
$
(409,090
)
 
$
(558,394
)
 
$
(20,321,712
)
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share from:
 
 
 
 
 
 
 
 
 
Continuing operations
 
0.03

 
(0.01
)
 
(0.02
)
 
(0.76
)
 
Discontinued operations
 

 
(0.01
)
 

 

 
Basic net loss per share
 
0.03

 
(0.02
)
 
(0.02
)
 
(0.76
)
 
 
 
 
 
 
 
 
 
 
 
Fully diluted earnings per share from:
 
 
 
 
 
 
 
 
 
Continuing operations
 
0.03

 
(0.01
)
 
(0.02
)
 
(0.76
)
 
Discontinued operations
 

 
(0.01
)
 

 

 
Fully diluted net loss per share
 
0.03

 
(0.02
)
 
(0.02
)
 
(0.76
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
 
 
 
 
 
 
 
Basic
 
26,629,974

 
26,621,421

 
26,764,776

 
26,845,643

 
Diluted
 
26,629,974

 
26,621,421

 
26,764,776

 
26,845,643

 

1 The results for the quarter ended December 31, 2017 is impacted by a charge of $3.1 million as a result of the enactment of the Tax Act and the recording of a valuation allowance of $15.9 million. See Note 9 for for additional details.

 
 
Fiscal Quarters
 
 
March 27,
2016
 
June 26,
2016
 
September 25,
2016
 
December 25,
2016
Revenue
 
$
43,143,252

 
$
40,951,181

 
$
41,625,312

 
$
40,801,180

Operating profit (loss)
 
3,115,981

 
1,387,085

 
1,946,629

 
854,276

Income (loss) before income taxes
 
1,710,783

 
(17,202
)
 
519,205

 
(844,530
)
Net income (loss) from continuing operations
 
1,292,429

 
234,344

 
596,709

 
1,515,566

Net income (loss) from discontinued operations
 
(862,025
)
 
(416,770
)
 
(1,985,834
)
 
(6,376,900
)
Net income (loss)
 
$
430,404

 
$
(182,426
)
 
$
(1,389,125
)
 
$
(4,861,334
)
 
 
 
 
 
 
 
 
 
Basic earnings per share from:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.05

 
$
0.01

 
$
0.02

 
$
0.06

Discontinued operations
 
(0.03
)
 
(0.02
)
 
(0.07
)
 
(0.24
)
Basic net loss per share
 
$
0.02

 
$
(0.01
)
 
$
(0.05
)
 
$
(0.18
)
 
 
 
 
 
 
 
 
 
Fully diluted earnings per share from:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.05

 
$
0.01

 
$
0.02

 
$
0.06

Discontinued operations
 
(0.03
)
 
(0.02
)
 
(0.07
)
 
(0.24
)
Fully diluted net loss per share
 
$
0.02

 
$
(0.01
)
 
$
(0.05
)
 
$
(0.18
)
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
 
 
 
 
 
 
Basic
 
26,298,034

 
26,379,065

 
26,625,615

 
26,664,409

Diluted
 
26,298,034

 
26,379,065

 
26,625,615

 
26,664,409

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
Principles of Consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
Fiscal Year

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. Fiscal year 2017 ended on December 31, 2017 and was comprised of 53 weeks. Fiscal year 2016 ended on December 25, 2016 was comprised of 52 weeks.
Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and demand deposits in banks. The Company considers all highly-liquid investments purchased with original maturities of three months or less to be cash and cash equivalents. The Company, at times throughout the year, may, in the ordinary course of business, maintain cash balances in excess of federally-insured limits. Management does not believe the Company is exposed to any unusual risks on such deposits.
Accounts Receivable

At December 31, 2017, accounts receivable primarily consist of contractually determined receivables from BWLD for gift card reimbursements. At December 25, 2016, accounts receivable primarily consist of contractually determined receivables from BWLD for local media advertising reimbursements. Accounts receivable are stated at the amount management expects to collect. Balances that are outstanding after management has used reasonable collection efforts are written off with a corresponding charge to bad debt expense.
Gift Cards

The Company records gift cards under a BWLD system-wide program. Gift cards sold are recorded as a gift card liability. When redeemed, the gift card liability account is offset by recording the transaction as revenue. At times, gift card redemptions can exceed amounts due to BWLD for gift card purchases resulting in an asset balance. Under this centralized system, any breakage would be recorded by Blazin' Wings, Inc., a subsidiary of BWLD, and is subject to the breakage laws in the state of Minnesota, where Blazin' Wings, Inc. is domiciled.
Inventory

Inventory consists mainly of food and beverage products and is accounted for at the lower of cost or market using the first in, first out method of inventory valuation. Cash flows related to inventory sales are classified in net cash provided by operating activities in the Consolidated Statements of Cash Flows.
Prepaids and Other Long-Term Assets

Prepaid assets consist principally of prepaid insurance and contracts and are recognized ratably as operating expense over the period of future benefit. Other assets consist primarily of security deposits for operating leases and utilities.
Property and Equipment

Property and equipment are recorded at cost. Equipment and furniture and fixtures are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements, which include the cost of improvements funded by landlord incentives or allowances, are amortized using the straight-line method over the lesser of the term of the lease, without consideration of renewal options, or the estimated useful lives of the assets, which is typically five - 15 years. Maintenance and repairs are expensed as incurred. Upon retirement or disposal of assets, the cost and accumulated depreciation are eliminated from the respective accounts and the related gains or losses are credited or charged to earnings.

The Company capitalizes items associated with construction but not yet placed into service, known as construction in progress (“CIP”). Items capitalized include fees associated with the design, build out, furnishing of the restaurants, leasehold improvements, construction period interest (when applicable), equipment, and furniture and fixtures. Restaurant CIP is not amortized or depreciated until the related assets are placed into service. Items are placed into service according to their asset category when the restaurant is open for service.
Intangible Assets

Amortizable intangible assets consist of franchise fees, trademarks, non-compete agreements, favorable and unfavorable operating leases, and loan fees and are stated at cost, less accumulated amortization. Intangible assets are amortized on a straight-line basis over the estimated useful life, as follows: Franchise fees- 1020 years, Trademarks- 15 years, Non-compete- 3 years, Favorable and unfavorable leases - over the term of the respective leases and Loan fees - over the term of the respective loan.

Liquor licenses, if transferable, are deemed to have an indefinite life and are carried at the lower of fair value or cost. We identify potential impairments for liquor licenses by comparing the fair value with its carrying amount. If the fair value exceeds the carrying amount, the liquor licenses are not impaired. If the fair value of the asset is less than the carrying amount, an impairment charge is recorded. No impairments were recognized in fiscal years ended December 25, 2017 and December 27, 2016.

Impairment or Disposal of Long-Lived Assets

We review long-lived assets quarterly to determine if triggering events have occurred which would require a test to determine if the carrying amount of these assets may not be recoverable based on estimated future cash flows. Assets are reviewed at the lowest level for which cash flows can be identified, which is at the individual restaurant level. In the absence of extraordinary circumstances, restaurants are included in the impairment analysis after they have been open for two years. We evaluate the recoverability of a restaurant’s long-lived assets, including intangibles, leasehold improvements, furniture, fixtures, and equipment over the remaining life of the primary asset in the asset group, after considering the potential impact of planned operational improvements, marketing programs, and anticipated changes in the trade area. In determining future cash flows, significant estimates are made by management with respect to future operating results for each restaurant over the remaining life of the primary asset in the asset group. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset carrying amount exceeds its fair value based on our estimate of discounted future cash flows. The determination of asset fair value is also subject to significant judgment. During the years ended December 31, 2017 and December 25, 2016, there were no impairments of long-lived assets pertaining to continuing operations.

We account for exit or disposal activities, including restaurant closures, in accordance with ASC Topic 420, Exit or Disposal Cost Obligations. Such costs include the cost of disposing of the assets as well as other facility-related expenses from previously closed restaurants. These costs are generally expensed as incurred. Additionally, at the date we cease using a property under an operating lease, we record a liability for the net present value of any remaining lease obligations, net of estimated sublease income. Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of sublease income are recorded in the period incurred.
Goodwill

Goodwill is not amortized and represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill is subject to an annual impairment analysis or more frequently if indicators of impairment exist. At both December 31, 2017 and December 25, 2016, we had goodwill of $50.1 million. The goodwill is assigned to the Company's Buffalo Wild Wings reporting unit, which, due to the Spin-Off of Bagger Dave's on December 25, 2016, represents the Company's only reporting unit.

The Company assesses goodwill for impairment on an annual basis during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company’s assessment first reviews relevant qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we assess relevant events and circumstances. If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the quantitative impairment test would be necessary. Conversely, if it is not more likely than not that the fair value of the reporting unit is less than the carrying amount, further action would not be required.

We early adopted Accounting Standards Update ("ASU") 2017-04, Topic 350: Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment ("ASU 2017-04") as of September 25, 2017, the beginning of our fourth quarter. ASU 2017-04 requires goodwill impairment to be measured as the excess of the carrying value over the fair value of the reporting unit, not to exceed the carrying amount of goodwill. Previously goodwill impairment was measured as the excess of carrying value over the implied fair value of goodwill. The carrying value of our reporting unit as of September 25, 2017 was negative, and therefore goodwill was not impaired as of December 31, 2017. As a result of our qualitative assessment as of December 25, 2016, we determined it was not more likely than not that the fair value of the reporting unit was below the carrying value and therefore no impairment was calculated.

Deferred Rent

Certain operating leases provide for minimum annual payments that increase over the life of the lease. Typically, our operating leases contain renewal options under which we may extend the initial lease terms for periods of five to 10 years. The aggregate minimum annual payments are expensed on a straight-line basis commencing at the start of our construction period and extending over the term of the related lease, including option renewals as deemed reasonably assured. The amount by which straight-line rent exceeds actual lease payment requirements in the early years of the lease is accrued as deferred rent liability and reduced in later years when the actual cash payment requirements exceed the straight-line expense. The Company also accounts, in its straight-line computation, for the effect of any "rental holidays", "free rent periods", and "landlord incentives or allowances".

Deferred Gains

Deferred gains from sale leaseback transactions are recognized into income over the life of the related operating lease agreements.
Revenue Recognition

Revenues from food, beverage and merchandise sales are recognized and generally collected at the point of sale. All sales taxes are presented on a net basis and are excluded from revenue.
Advertising

Advertising expenses associated with contributions to the BWLD advertising fund and regional cooperatives (between 3.15% and 3.50% of total net sales) are recorded as operating expenses as contributed, while all other advertising expenses are recorded in general and administrative expenses as incurred.
Pre-opening Costs

Pre-opening costs are those costs associated with opening new restaurants and will vary based on the number of new locations opening and under construction. Pre-opening costs typically consist of manager salaries, relocation costs, supplies, recruiting expenses, certain marketing costs and costs associated with team member training. The Company also reclassifies labor costs that exceed the historical average for the first three months of restaurant operations that are attributable to training. These costs are expensed as incurred.
Income Taxes

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

The Company applies the provisions of ASC Topic 740, Income Taxes, regarding the accounting for uncertainty in income taxes. The Company classifies all interest and penalties as income tax expense.
Earnings Per Common Share

Earnings per share are calculated under the provisions of FASB ASC 260, Earnings per Share, which requires a dual presentation of "basic" and "diluted" earnings per share on the face of the Consolidated Statements of Operations. Basic earnings per common share excludes dilution and is computed by dividing the net earnings available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share include dilutive common stock equivalents consisting of stock options determined by the treasury stock method. Restricted stock awards contain non-forfeitable rights to dividends, making such awards participating securities. The calculation of basic and diluted earnings per share uses an earnings allocation method to consider the impact of restricted stock.
ased Compensation

The Company estimates the fair value of stock option awards utilizing the Black-Scholes pricing model. The fair value of the awards is amortized as compensation expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period. The fair value of restricted shares is equal to the number of restricted shares issued times the Company’s stock price on the date of grant and is amortized as compensation expense on a straight-line basis over the service period of the award.
Concentration Risks

Approximately 76.9% and 77.4% of the Company's continuing revenues for the years ended December 31, 2017 and December 25, 2016, respectively, were generated from food and beverage sales from restaurants located in the Midwest region.
Use of Estimates

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

The Company utilizes interest rate swap agreements with Citizens Bank, N.A. (“Citizens”) and other banks to fix interest rates on a portion of the Company’s portfolio of variable rate debt, which reduces exposure to interest rate fluctuations. Our derivative financial instruments are recorded at fair value on the Consolidated Balance Sheets. The effective portion of changes in the fair value of derivatives which qualify for hedge accounting is recorded in other comprehensive income and is recognized in the Consolidated Statements of Operations when the hedged item affects earnings. Ineffective portion of the change in fair value of a hedge would be recognized in income immediately. 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 associated with the Company’s current debt agreements qualify for hedge accounting. As such, the Company records the change in the fair value of its swap agreements as a component of accumulated other comprehensive income (loss), net of tax. The Company records the fair value of its interest swaps on the Consolidated Balance Sheets in other long-term assets or other liabilities depending on the fair value of the swaps.
Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (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 May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. We do not believe the updated requirements will materially impact our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Topic 230: Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 clarifies current GAAP that is either unclear or does not include specific guidance on a number of specific issues. The amendments set forth are an improvement to GAAP because they provide guidance for each issue and reduce the current and potential future diversity in practice. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the pending adoption of ASU 2016-15 and the impact it will have on our consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, Leases. 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.

In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09 Revenue with Contracts from Customers (Topic 606). 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 March 2016, the FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products. ASU 2016-04 provides specific guidance for the de-recognition of prepaid stored-value product liabilities. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 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 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing." ASU 2016-10 provides clarification on the subjects of identifying performance obligations and licensing implementation 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 will adopt these standards upon their effective date. The Company has substantially completed its evaluation of the standard, and our assessment concludes that the new revenue recognition standard will not materially impact the recognition of restaurant sales, our primary source of revenue, or any other revenue stream. Additionally, this guidance will require us to enhance our disclosures, including disclosing performance obligations to customers arising from certain promotional activity, such as our customer loyalty program which is not material as of December 31, 2017. The Company is finalizing our conclusion of the disclosures surrounding disaggregated revenue, and will complete the assessment prior to filing our first quarter Form 10-Q in 2018. With respect to the transition method for adoption, we will adopt this standard using the modified retrospective approach.

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 January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-04, Topic 350: Intangibles - Goodwill and Other: 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 units 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.
DISCONTINUED OPERATIONS (Tables)
The following are major classes of line items constituting pre-tax loss from discontinued operations:
 
 
Fiscal Years Ended
 
 
December 31, 2017
 
December 25, 2016
Revenue
 
$

 
$
20,741,427

Restaurant operating costs (exclusive of depreciation and amortization)
 
95,536

 
(21,436,377
)
General and administrative expenses
 
(334,529
)
 
(2,881,467
)
Depreciation and amortization
 
740

 
(3,353,194
)
Pre-opening costs
 

 
(362,064
)
Other income
 

 
11,066

Impairment and loss on asset disposals
 

 
(2,946,387
)
Loss from discontinued operations before income taxes
 
(238,253
)
 
(10,226,996
)
Income tax benefit
 
64,328

 
585,467

 
 
 
 
 
Total loss from discontinued operations
 
$
(173,925
)
 
$
(9,641,529
)
The following table summarizes the Company’s accrual activity related to facility closures during the fiscal years ended December 31, 2017 and December 25, 2016:
 
Fiscal 2017
 
Fiscal 2016
Beginning of the year
$
107,153

 
$
1,247,186

Charges

 

Payments/utilizations/other
(107,153
)
 
(1,140,033
)
End of the year
$

 
$
107,153

The following is a summary of the expenses recognized in discontinued operations in the Consolidated Statement of Operations during the years ended December 31, 2017 and December 25, 2016 related to the restaurant closures and impairment of property and equipment:
Description
Fiscal 2017
 
Fiscal 2016
Property and equipment impairments
$

 
$
3,548,515

UNCONSOLIDATED VARIABLE INTEREST ENTITIES (Tables)
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 December 31, 2017:
Location of lease
Status of location
Guarantee expiry date
Future guaranteed lease payments
Bloomfield, MI 1
Open
01/14/18
3,750

Shelby Township, MI 1
Open
01/31/18
6,482

West Chester Township, MI
Open
02/01/18
7,083

Woodhaven, MI
Closed / re-leased
11/30/18
68,017

Traverse City, MI 1
Open
01/31/19
99,167

Fort Wayne, IN
Open
01/31/19
91,121

Grand Blanc, MI
Open
01/31/20
147,167

Centerville, MI
Open
11/30/20
318,079

Chesterfield Township, MI
Open
12/31/20
195,000

E. Lansing, MI 1
Open
09/10/21
75,000

Birch Run, MI
Open
12/31/24
667,875

Berkley, MI
Open
06/08/29
970,920

Cascade Township, MI
Open
06/08/29
891,054

Avon, IL
Closed / re-leased
06/30/29
1,452,204

Greenwood, IL
Closed / re-leased
06/30/29
1,503,360

Canton, MI 1
Open
06/30/30
1,934,929

Totals
 
 
$
8,431,208

PROPERTY AND EQUIPMENT, NET (Tables)
Schedule of property and equipment
Property and equipment are comprised of the following:
 
 
December 31, 2017
 
December 25, 2016
Equipment
 
$
30,252,867

 
$
29,426,476

Furniture and fixtures
 
7,444,792

 
7,275,923

Leasehold improvements
 
64,936,413

 
63,449,082

Restaurant construction in progress
 
161,942

 
94,595

Total
 
102,796,014

 
100,246,076

Less accumulated depreciation
 
(54,781,971
)
 
(43,616,045
)
Property and equipment, net
 
$
48,014,043

 
$
56,630,031