Diversified Restaurant Holdings, Inc. Annual Report 2014

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FY2014 Annual Report · Diversified Restaurant Holdings, Inc.

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Restaurant Locations

2014

ANNUAL REPORT
Diversified Restaurant Holdings

Buffalo Wild Wings
Bagger Dave’s

NUMBER OF LOCATIONS

Buffalo Wild Wings

Bagger Dave’s

21
3

2010

2011

2012

2013

2014

LOCATIONS

Michigan

Ann Arbor
Berkley
Birch Run
Bloomfield
Brighton
Canton*
Cascade Township
Detroit
East Lansing

Grand Blanc
Grand Rapids
Grandville
Holland
Shelby Township
Traverse City
Novi
Woodhaven

Indiana

Indianapolis
Avon
Carmel
Crown Point*
Fishers

Fort Wayne
Greenwood
Schererville
Terre Haute

LOCATIONS

Michigan
Novi
Petoskey
Port Huron
Royal Oak
Sault Ste. Marie
Sterling Heights
Traverse City
Troy
Warren

Birch Run
Chesterfield
Clinton Township
Detroit
Fenton
Flint
Gaylord
Grand Blanc
Lapeer
Marquette

Florida

Brandon
Clearwater
Fish Hawk
Fort Myers
Lakeland
Largo
New Port Richey

Indiana
Crown Point
Hammond
Hobart
Schererville
Valparaiso

North Port
Oldsmar
Pinellas Park
Riverview
Sarasota
University Park
Ybor

Illinois
Calumet City
Homewood
Lansing
Chicago

* Opened in 2015

DEAR FELLOW STOCKHOLDERS, GUESTS, ASSOCIATES, AND FANS:

2014 was an outstanding and pivotal year for Diversified Restaurant Holdings, reflecting our commitment to
delighting our guests through great dining experiences that foster and reinforce loyalty. Throughout 2014 we made
significant strategic progress at our Bagger Dave’s Burger Tavern® (“Bagger Dave’s”) and Buffalo Wild Wings®
(“BWW”) restaurants and these efforts are clearly resonating as we had expected. As we look ahead, we will ensure
our future success through consistent execution of new disciplines and processes we have instilled throughout the
Company.

We were delighted to have been honored with the ‘Franchisee of the Year’ Award and the ‘Founders’ Award at the
annual BWW convention. These accolades are a testament to our already strong relationship with Buffalo Wild
Wings Inc. that we will work to strengthen further in the years to come.

Our 2014 financial performance marked another period of robust results. We increased our revenue by 17.9% to a
record $128.4 million, including a 3.5% increase in comparable-store sales. Our strong comparable-store sales
growth accelerated as the year progressed, culminating in 16 consecutive quarters of positive comparable-store
sales growth. We have a number of exciting programs in place to drive consistent and sustainable sales growth and
have entered 2015 with great momentum.

We ended 2014 with 66 total restaurants, consisting of 24 Bagger Dave’s and 42 BWW. We added twelve
restaurants to our portfolio, consisting of six new Bagger Dave's, three new BWW, and three acquired BWW. In
total, we achieved unit growth of more than 22.2%, placing us in very select company among our industry peers. We
believe our track record of acquiring and integrating BWW restaurants affords us with a unique opportunity to take
advantage of strategic accretive acquisitions in the marketplace. This has been demonstrated by our proven ability
to leverage our operational expertise, infrastructure, and systems to drive stronger profitability and unit volumes at
restaurants we have acquired in the past.

We are excited by our strong development pipeline to expand both concepts, and in particular, the expansion of
Bagger Dave's into Ohio in the upcoming year. We plan to open eight to nine new restaurants in 2015, including five
to six Bagger Dave's and three BWW and are in an excellent financial position to support our organic growth plans.
During 2014, we entered into an agreement for a $24.6 million sale leaseback transaction, successfully refinanced
our debt, and reloaded our development line of credit for an additional $20 million. These transactions further
enhance our financial flexibility and we believe will allow us to capitalize on the exciting and long runway of growth
we see ahead for expanding both Bagger Dave's and BWW.

Lastly, the ability to meet our strategic goals is truly a testament to our employees’ steadfast commitment and
enthusiasm. Throughout the year, we invested in our DRH Restaurant Excellence Academy, as well as engaged the
Disney Institute to help foster restaurant-level leadership skills, disseminate our culture, and empower our
employees. These efforts are designed to ensure that we have best-in-class management at all our restaurants and
deliver on our mission of delighting our guests.

In closing, I would like to express my appreciation to our Board, my fellow associates, our guests and fans, and our
stockholders. We are very confident about the future and look forward to even more successful years ahead. Thank
you for your continued support of Diversified Restaurant Holdings.

Sincerely,

T. Michael Ansley
Chairman, President, and CEO
April 08, 2015

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☑

☐

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 28, 2014

Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 000-53577
DIVERSIFIED RESTAURANT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of incorporation or organization)

03-0606420
(I.R.S. Employer Identification No.)

27680 Franklin Rd., Southfield, MI 48034
(248) 223-9160
(Address, including zip code and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Exchange Act:4

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.0001 par value per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ☑

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

Large accelerated filer☐

Accelerated filer☑

Non-accelerated filer☐

Smaller reporting company☐

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

The aggregate market value of the Registrant’s voting common stock held by non-affiliates was $64.7 million based on the per share closing
price of the Company's common stock as reported on the NASDAQ stock market on June 27, 2014.

The number of shares outstanding of the registrant's common stock as of March 6, 2015 was 26,187,199 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on or about May 21, 2015 are
incorporated by reference in Part III herein. The registrant intends to file such Proxy Statement with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year covered by this report on Form 10-K.

TABLE OF CONTENTS

PART I ...................................................................................................................................................................................................

Item 1. Business ............................................................................................................................................................................

Item 1A. Risk Factors ....................................................................................................................................................................

Item 1B. Unresolved Staff Comments ...........................................................................................................................................

Item 2. Properties ..........................................................................................................................................................................

Item 3. Legal Proceedings .............................................................................................................................................................

Item 4. Mine Safety Disclosures ...................................................................................................................................................

Page

PART II .................................................................................................................................................................................................

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .........

Item 6. Selected Financial Data .....................................................................................................................................................

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation ...............................................

Item 7A. Quantitative and Qualitative Disclosures about Market Risk .........................................................................................

Item 8. Consolidated Financial Statements and Supplementary Data ...........................................................................................

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................

Item 9A. Controls and Procedures .................................................................................................................................................

Item 9B. Other Information ...........................................................................................................................................................

PART III ................................................................................................................................................................................................

Item 10. Directors, Executive Officers and Corporate Governance ..............................................................................................

Item 11. Executive Compensation .................................................................................................................................................

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................

Item 13. Certain Relationships and Related Transactions, and Director Independence .................................................................

Item 14. Principal Accountant Fees and Services ..........................................................................................................................

PART IV ................................................................................................................................................................................................

Item 15. Exhibits and Financial Statement Schedules ...................................................................................................................

SIGNATURES .......................................................................................................................................................................................

Exhibit 10.13
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I

When used in this Form 10-K, the “Company” and “DRH” refers to Diversified Restaurant Holdings, Inc. and, depending on
the context, could also be used to refer generally to the Company and its subsidiaries, which are described below.

Cautionary Statement Regarding Forward-Looking Information

Some of the statements in the sections entitled “Business,” and “Risk Factors,” and statements made elsewhere in this Annual
Report may constitute forward-looking statements. These statements reflect the current views of our senior management
team with respect to future events, including our financial performance, business, and industry in general. Statements that
include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and
similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal
securities laws or otherwise.

Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important
factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these
factors include, but are not limited to, the following:

●

the success of our existing and new restaurants;

our ability to identify appropriate sites and develop and expand our operations;

changes in economic conditions, including continuing effects from the recent recession;

damage to our reputation or lack of acceptance of our brands in existing or new markets;

economic and other trends and developments, including adverse weather conditions, in the local or
regional areas in which our restaurants are located;

the impact of negative economic factors, including the availability of credit, on our landlords and
surrounding tenants;

changes in food availability and costs;

labor shortages and increases in our compensation costs, including, as a result, changes in government
regulation;

increased competition in the restaurant industry and the segments in which we compete;

the impact of legislation and regulations regarding nutritional information, new information or attitudes
regarding diet and health, or adverse opinions about the health of consuming our menu offerings;

the impact of federal, state, and local beer, liquor, and food service regulations;

the success of our marketing programs;

the impact of new restaurant openings, including on the effect on our existing restaurants of opening new
restaurants in the same markets;

the loss of key members of our management team;

inability or failure to effectively manage our growth, including without limitation, our need for liquidity
and human capital;

the impact of litigation;

the adequacy of our insurance coverage and fluctuating insurance requirements and costs;

●

the impact of our indebtedness on our ability to invest in the ongoing needs of our business;

our ability to obtain debt or other financing on favorable terms, or at all;

the impact of a potential requirement to record asset impairment charges in the future;

the impact of any security breaches of confidential guest information in connection with our electronic
processing of credit/debit card transactions;

our ability to protect our intellectual property;

the impact of any failure of our information technology system or any breach of our network security;

the impact of any materially adverse changes in our federal, state, and local taxes;

our ability to main our relationship with our franchisor on economically favorable terms;

the impact of future sales of our common stock in the public market, the exercise of stock options, and
any additional capital raised by us through the sale of our common stock; and

the effect of changes in accounting principles applicable to us.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements
included in this Annual Report. If one or more of these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Any forward-looking
statements you read in this Annual Report reflect our views as of the date of this Annual Report with respect to future events
and are subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, growth
strategy, and liquidity. You should carefully consider all of the factors identified in this Annual Report that could cause
actual results to differ.

ITEM 1. BUSINESS

Business Overview

DRH is a fast-growing restaurant company operating two complementary concepts: Bagger Dave’s Burger Tavern ®
(“Bagger Dave’s”) and Buffalo Wild Wings ® Grill & Bar (“BWW”). As the creator, developer, and operator of Bagger
Dave’s and as one of the largest franchisees of BWW, we provide a unique guest experience in a casual and inviting
environment. We were incorporated in 2006 and are headquartered in the Detroit metropolitan area. As of December 28,
2014, we had 66 locations in Florida, Illinois, Indiana, and Michigan.

In 2008, DRH became publicly owned completing a self-underwritten initial public offering for $735,000 and 140,000
shares. We subsequently completed an underwritten, follow-on offering on April 23, 2013 of 6.9 million shares with net
proceeds of $31.9 million.

DRH and its wholly-owned subsidiaries (collectively, the “Company”), AMC Group, Inc. (“AMC”), AMC Wings, Inc.
(“WINGS”), AMC Burgers, Inc. (“BURGERS”), and AMC Real Estate, Inc. (“REAL ESTATE”) own and operate Bagger
Dave's and DRH-owned BWW restaurants located throughout Florida, Illinois, Indiana, and Michigan.

DRH originated the Bagger Dave’s concept with our first restaurant opening in January 2008 in Berkley,
Michigan. Currently, there are 26 Bagger Dave’s, 17 in Michigan and nine in Indiana. The Company expects to operate
between 47 and 51 Bagger Dave’s locations by the end of 2017.

DRH is also one of the largest BWW franchisees and currently operates 42 DRH-owned BWW restaurants (19 in Michigan,
14 in Florida, four in Illinois, and five in Indiana), including the nation’s largest BWW, based on square footage, in downtown
Detroit, Michigan. We remain on track to fulfill our area development agreement (“ADA”) with BWLD and expect to operate
52 DRH-owned BWW restaurants by the end of 2017, exclusive of potential additional BWW restaurant acquisitions. In
2014 DRH was awarded the Franchisee of Year and our COO recieved the Founders’ Award by Buffalo Wild Wings
International (“BWLD”).

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.

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, BURGERS, 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.

BURGERS was formed on March 12, 2007 and serves as a holding company for our Bagger Dave’s restaurants. Bagger
Dave’s Franchising Corporation, a subsidiary of BURGERS, was formed to act as the franchisor for the Bagger Dave’s
concept and has rights to franchise in Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, and Wisconsin. We do not
intend to pursue franchise development at this time.

WINGS was formed on March 12, 2007 and serves as a holding company for our DRH-owned BWW restaurants. We are
economically dependent on retaining our franchise rights with BWLD. The franchise agreements have specific initial term
expiration dates ranging from March 2020 through December 2034, 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 December 2049. 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 the real estate properties owned by
DRH. REAL ESTATE’s portfolio currently includes three properties, two Bagger Dave’s restaurants, which will be sold as
part of the sale leaseback transaction as described in Note 3 of the Consolidated Financial Statements, and one DRH-owned
BWW restaurants. The restaurants at these locations are all owned and operated by DRH.

Our headquarters are located at 27680 Franklin Road, Southfield, Michigan 48034. Our telephone number is (248) 223-
9160. We can also be found on the internet at www.diversifiedrestaurantholdings.com and www.baggerdaves.com.

Background

Restaurant Concepts

Bagger Dave’s Burger Tavern®

Launched in January 2008, Bagger Dave's is our first initiative to diversify our operations outside of the BWW concept by
developing our own unique, full-service, ultra-casual restaurant and bar concept. We have worked to create a concept that
provides a warm, inviting, and entertaining atmosphere through friendly and memorable guest experience. Currently, there
are 26 restaurants (17 in Michigan and nine in Indiana).

Bagger Dave’s specializes in custom-built proprietary fresh prime rib recipe burgers, all-natural lean turkey burgers, hand-
cut fries, locally crafted beers on draft, hand-dipped milk shakes, salads, black bean turkey chili, and much more, delivered
in a warm, hip atmosphere with friendly "full" service. The concept differentiates itself from other full-service casual dining
establishments by the absence of walk-in freezers and microwaves, substantiating our fresh food offerings. The concept
focuses on local flair of the city in which the restaurant resides by showcasing historical photos. It also features an electric
train that runs above the dining room and bar areas.

The guiding principle of the Bagger Dave’s brand is to delight guests through fresh food offerings, exceptional service, and
an entertaining atmosphere. The menu is a-la-carte and focuses on burgers, with a variety of sides. Burgers are offered with
a choice of four proteins; USDA, fresh premium prime-rib recipe beef (offered in 8oz patty or 4oz patty), Michigan ground
turkey, farm-raised, cage-free grilled chicken breasts and black bean patties. Guests can choose from our list of burgers
including the Train Wreck Burger ®, the Blues Burger ®, and Tuscan Chicken. Guests can also choose to “Create Your Own”
which allows them to totally customize their experience by choosing from a variety of proteins, buns, cheeses, house-recipe
sauces presenting bold and exciting new flavors, premium toppings such as bacon, egg, guacamole, and a variety of
complementary toppings, such as sautéed mushrooms and onions, barbecue sauce, and other standard condiments.

To further customize their experience, guests can choose from a selection of sides including fresh-cut potato fries, Dave’s
Sweet Potato Chips®, Amazingly Delicious Turkey Black Bean Chili® and our fresh, made-to-order Twisted Mac ‘N’ Cheese.
The fries are cut in-house from domestic Northeastern potatoes and cooked in a cottonseed soy bean specialty oil, using a
seven-step Belgian-style process producing a fry reminiscent of those served at community fairs. Dave’s Sweet Potato Chips
® are a Bagger Dave’s specialty using fresh-cut premium sweet potatoes from North Carolina. Guests can choose from our
own signature dipping sauces to complement their order entrée and sides. Since our fryers are dedicated to potatoes and there
are no breaded, frozen products offered at Bagger Dave’s, our potato fries and sweet potato chips are gluten free and trans-
fat free.

Beyond burger offerings, Bagger Dave’s offers other entrees such as a Tomato-Basil-Onion Grilled Cheese sandwich, a
California BLT sandwich, Dave’s Signature Italian Beef sandwich, and entrée sized chopped salads with grilled chicken.
Bagger Dave’s also offers hand-dipped ice cream and milkshakes with a variety of free mix-ins, adult shakes, sommelier-
selected wines and a full selection of liquors. For fiscal year 2014, our average Bagger Dave’s restaurant derived
approximately 86.3% of its revenue from food, including non-alcoholic beverages, and 13.7% of its revenue from alcohol
sales, primarily draft beer.

To reinforce the Bagger Dave’s name and brand, our fresh-cut fries and sweet potato-chips are served in natural, brown bags
decorated with our logo and served in a cake tin.

Buffalo Wild Wings

With 42 DRH-owned BWW restaurants (19 in Michigan, 14 in Florida, four in Illinois, and five in Indiana), including the
nation’s largest BWW, based on square footage, in downtown Detroit, Michigan, DRH is one of the largest BWLD
franchisees. As of December 28, 2014, BWLD reported over 1,000 BWW restaurants in North America that were either
directly owned or franchised. The restaurants feature a variety of boldly-flavored, craveable menu items in a welcoming
neighborhood atmosphere with an extensive multimedia social environment, a full bar, and an open layout designed to create
a distinctive dining experience for sports fans and families alike. We believe the restaurants are differentiated by the social
environment we create and the connection the restaurants make with our team members, guests, and the local community.
The inviting and energetic environment of the restaurants is complemented by furnishings that can easily be rearranged to
accommodate parties of various sizes. Guests have the option of watching various sporting events on projection screens or
approximately 50 additional televisions, competing in Buzztime Trivia, or playing video games.

BWW restaurants have won dozens of “Best Wings” and “Best Sports Bar” awards across the country. We believe the BWW
menu is competitively priced between the quick-casual and casual dining segments. The menu features traditional chicken
wings, boneless wings, and other items including chicken tenders, Wild Flatbreads ™ , popcorn shrimp, specialty hamburgers
and sandwiches, wraps, Buffalito ® soft tacos, appetizers, and salads. The made-to-order menu items are enhanced by the
bold flavor profile of 16 signature sauces and five signature seasonings, which range in flavor from Sweet BBQ ® to
Blazin’ ®. The restaurants offer approximately 12 to 30 domestic and imported beers on tap, including several local or
regional microbrews and a wide selection of bottled beer, wine, and liquor. We believe the award-winning food and
memorable experience drives guest visits and loyalty. For fiscal year 2014, our average DRH-owned BWW restaurant
derived approximately 80.9% of its revenue from food, including non-alcoholic beverages, and 19.1% of its revenue from
alcohol sales, primarily draft beer.

Growth Strategy

We have a multi-layered growth strategy. We plan to grow by increasing the number of restaurants in each of the two concepts
we currently offer and target opening a minimum of eight new restaurants per year.

We have successfully expanded our Bagger Dave’s restaurant base from just three restaurants in 2010 to 26 company-owned
locations as of March 13, 2015. We believe that we are well positioned to grow throughout the Midwest and ultimately
nationally. We expect to open additional restaurants if suitable locations are found and appropriate financing can be
secured. We plan to operate between 47 and 51 Bagger Dave’s corporate locations by the end of 2017.

We currently operate 42 DRH-owned BWW restaurants: 19 in Michigan, 14 in Florida, four in Illinois, and five in Indiana.
We have opened 24 DRH-owned BWW restaurants in fulfillment of our 32-resaturants ADA with BWLD. Including the
remaining eight restaurants under the ADA, and two additional franchise agreements, we expect to operate 52 BWW
restaurants by 2017, exclusive of potential acquisitions of additional BWW restaurants.

We believe our track record of acquiring and integrating BWW restaurants affords us with a unique opportunity to take
advantage of strategic accretive acquisitions in the marketplace. Throughout our history, we have demonstrated our proven
ability to leverage our operational expertise, infrastructure, and systems to drive stronger profitability and unit volumes at
acquired restaurants. The combination of our size and history with the Buffalo Wild Wings brand allows us to utilize best
practices and optimize the performance of any restaurants that we may acquire.

One of our guiding principles is that a happy team member translates into a happy guest. A happy guest drives repeat sales
and word-of-mouth referrals – two key factors that are fundamental to our sales growth strategy. We believe that our core
areas of expertise include site selection, development, management, quality guest service, and operations.

A center point in our expansion plan was opening the largest BWW, by square-footage, in downtown Detroit, Michigan, on
December 23, 2012, to take advantage of the energy and positivity surrounding the revitalization and rebuilding of downtown
Detroit. It occupies two stories in the Odd Fellow Building and is within walking distance of Ford Field, Comerica Park, and
Joe Louis Arena. According to a New York Times article published on July 11, 2011, in the last 10 years, Downtown Detroit
has experienced a 59.0% increase in the number of college-educated residents under the age of 35, creating a culture of trendy
bars and restaurants. Also driving the revitalization efforts is Detroit’s “15 by 15” initiative, a program focused on getting
15,000 young and talented households to move Downtown by 2015. To complement this location and further take advantage
of the growth of downtown Detroit, a new, three-story Bagger Dave’s was opened adjacent to this BWW in November of
2013.

Site Selection

We consider the real estate selection process to be a key factor in the long-term success of each restaurant, and as such, devote
a significant amount of time and effort into identifying and evaluating each potential location. We consider several metrics
to assess the strength of each proposed site, including daytime population, accessibility, population density, visibility and
neighboring retailers.

For our restaurants, we prefer a strong end-cap position, which is a premier, highly visible corner positioned in a well-
anchored shopping center or lifestyle entertainment center. We also seek to develop freestanding locations, if the opportunity
meets our site selection criteria, along with specific economic thresholds.

Restaurant Operations

We believe that retaining high quality restaurant managers, valuing our team members, and providing fast, friendly service
to our guests are key to our continued success. In order to retain our unique culture as we grow, we devote substantial
resources to identifying, selecting, and training our restaurant-level team members. We typically have six in-restaurants
trainers at each existing location who provide both front- and back-of-house training on site. We also have a seven-week
training program of our restaurant managers, which consists of an average of four weeks of restaurant training and three
weeks of cultural training. During their training, managers observe our established restaurants’ operations and guest
interactions. We believe our focus on guest-centric training is a core aspect of our Company and reinforces our mission to
delight our guests.

Management and Staffing

The core values that define our corporate culture are cleanliness, service, and organization. Our restaurants are generally
staffed with one managing partner and up to six assistant managers depending on the sales volume of the restaurant. The
managing partner is responsible for day-to-day operations and for maintaining the standards of quality and performance that
define our corporate culture. We utilize regional managing partners to oversee our managing partners and supervise the
operation of our restaurants, including the continuing development of each restaurant’s management team. Through regular
visits to the restaurants and constant communication with the management team, the regional managing partners ensure
adherence to all aspects of our concept, strategy, and standards of quality. We also have secret shoppers that visit our
restaurants on a monthly basis and provide guest satisfaction scores for the criteria we define.

Training, Development, and Recruiting

We believe that successful restaurant operations, guest satisfaction, quality, and cleanliness begin with the team member - a
key component of our strategy. We pride ourselves on facilitating a well-organized, thorough, hands-on training
program. Our team members undergo classroom training followed by job shadowing in order to prepare them for their role.

We offer an incentive program which we believe is very competitive in the restaurant industry. Aside from competitive base
salaries and benefits, management is incentivized with a performance-based bonus program. We also provide group health,
dental, and vision insurance, a company-sponsored 401(k) plan with a discretionary matching contribution feature, a tuition
reimbursement program, a referral bonus program, and opportunities for career advancement.

We emphasize growth from within the organization as much as possible, giving our team members the opportunity to develop
and advance. We believe this philosophy helps build a strong, loyal management team with high team member retention
rates, giving us an advantage over our competitors. We strive for a balance of internal promotion and external hiring.

Restaurants

Our typical Bagger Dave's restaurants range in size from 3,800 to 6,100 square feet, with a historical square foot average of
about 4,300. We anticipate future restaurants will be approximately 4,000 to 4,500 square feet in size, plus an outside seating
area where feasible. We anticipate an average cash investment per restaurant of approximately $1.1 million to $1.4 million.
From time to time, our restaurants may be smaller or larger or cost more or less than our targeted range, depending on the
particular circumstances of the selected site. Also, from time to time, we may elect to purchase either the building or the land
and building for certain restaurants, which would require additional capital. We plan to continue development of this concept
in the Michigan and Indiana and expand throughout the Midwest. Expansion outside of Michigan and Indiana will begin in
2015, as we intend to open Bagger Dave’s restaurants in Ohio.

Our typical DRH-owned BWW restaurants range in size from 5,300 to 13,500 square feet, with a historical square foot
average of about 6,400. We anticipate that future restaurants will range in size from 5,500 to 6,500 square feet with an average
cash investment per restaurant of approximately $1.9 million to $2.1 million. From time to time, our restaurants may be
smaller or larger or cost more or less than our targeted range, depending on the particular circumstances of the selected site.
Also, from time to time, we may elect to purchase either the building or the land and building for certain restaurants, which
would require additional capital.

We have a continuous capital improvement plan for our restaurants and plan major renovations every five years to
seven years. For a more detailed discussion of our capital improvement plans, see the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and specifically, the subsections entitled
“Liquidity and Capital Resources; Expansion Plans”.

Quality Control and Purchasing

We strive to maintain high quality standards, protecting our food supply at all times.

Purchasing for DRH-owned BWW restaurants is primarily through channels established by BWLD corporate operations. We
do, however, negotiate directly with most of these channels as to price and delivery terms. When we purchase directly, we
seek to obtain the highest quality ingredients, products, and supplies from reliable sources at competitive prices. For Bagger
Dave’s, we believe that we have been able to leverage our DRH-owned BWW purchasing power to develop supply sources
at a more reasonable cost than would be expected for a smaller restaurant concept.

To maximize our purchasing efficiencies, our centralized purchasing staff negotiates, when available, fixed-price contracts
(usually for a one-year period) or, where appropriate, commodity-price contracts.

Marketing and Advertising

In fiscal year 2014, we spent approximately 1.7% of all restaurant sales on marketing efforts. In addition, charitable donations
and local community sponsorships help us develop local public relations and are a major component of our marketing
efforts. We support programs that build traffic at the grass roots level. We also participate in numerous local restaurant
marketing events for both DRH-owned BWW and Bagger Dave’s throughout the communities we serve.

Bagger Dave’s

The advertising and marketing plan for developing the Bagger Dave’s brand relies on local media, menu specials, promotions,
and community events. We are also building our marketing reach with our current guests by enhancing our social media
presence and our loyalty rewards program. We attribute a large part of our Bagger Dave’s growth through word-of-mouth.

BWW

We pay a marketing fee to BWLD equal to 3.0% of revenue, which is supported by national advertising designed to build
brand awareness. Some examples include television commercials on ESPN and CBS during key games for the NFL, MLB,
NBA, and March Madness NCAA basketball tournaments. In addition, we invest in our own marketing initiatives, including
0.5% of DRH-owned BWW revenue which is allocated to a regional cooperative of BWW franchisees in the Detroit
metropolitan area (for those DRH-owned BWW restaurants in the Detroit metropolitan area). We established the DRH-owned
BWW restaurants in the Florida and Michigan markets through coordinated local restaurant marketing efforts and operating
strengths that focus on the guest experience.

Information Systems and Technology

We believe that technology can provide a competitive advantage and enable our strategy for growth through efficient
restaurant operations, information analysis, and ease and speed of guest service. We have a standard point-of-sale system in
our restaurants that is integrated to our corporate office through a web-based above-store business intelligence reporting and
analysis tool. Our systems are designed to improve operating efficiencies, enable rapid analysis of marketing and financial
information, and improve administrative productivity. In 2012, we launched online ordering for our Bagger Dave’s
restaurants and recently launched table side ordering devices that allows servers to create orders and send orders to the kitchen
while standing with the customer. We believe the table side ordering will help decrease serving time and increase customer
turnover and satisfaction since these devices also accommodate credit card swipes so that the card never has to leave the
customer’s sight. Beginning in 2014, we also integrated the online ordering function for BWW and the Rockbot music
experience where guests get to D.J. and select music played throughout the restaurant.

We are constantly assessing new technologies to improve operations, back-office processes, and overall guest experience.
This includes the implementation of mobile payment options, advanced programming of kitchen display units, tablet-based
wait-listing applications, and a mobile-based loyalty program.

Competition

The restaurant industry is highly competitive. We believe we compete primarily with local and regional sports bars and
national casual dining and quick-casual establishments. Competition is expected to remain intense with respect to price,
service, location, concept, and type and quality of food. There is also competition for real estate sites, qualified management
personnel, and hourly restaurant staff. Many of our competitors have been in existence longer than we have and may be

better established in markets where we are currently located or may, in the future, be located. Accordingly, we strive to
continually improve our restaurants, maintain high quality standards, and treat our guests in a manner that encourages them
to return. We believe our pricing communicates value to the guest in a comfortable, welcoming atmosphere that provides
full service to the guest.

Trademarks, Service Marks, and Trade Secrets

The BWW registered service mark is owned by BWLD.

Our domestically-registered trademarks and service marks include Bagger Dave’s Burger Tavern®, Sloppy Dave’s BBQ ®,
Railhouse Burger Sauce ®, The Blues Burger ®, Train Wreck Burger, Dave’s Sweet Potato Chips ®, Meaningless Free
Toppings ®, Sloppy Dave’s Fries ®, and Amazingly Delicious Turkey Black Bean Chili ®. We place considerable value on
our trademarks, service marks, trade secrets, and other proprietary rights and believe they are important to our brand-building
efforts and the marketing of our Bagger Dave’s ® restaurant concept. We intend to actively enforce and defend our intellectual
property, however, we cannot predict whether the steps taken by us to protect our proprietary rights will be adequate to
prevent misappropriation of these rights or the use by others of restaurant features based upon or similar to our
concepts. Although we believe we have sufficient protections concerning our trademarks and service marks, we may face
claims of infringement that could interfere with our ability to market our restaurants and promote our brand.

Government Regulations

The restaurant industry is subject to numerous federal, state, and local governmental regulations, including those relating to
the preparation and sale of food and alcoholic beverages, sanitation, public health, nutrition labeling requirements, fire codes,
zoning, and building requirements and to periodic review by state and municipal authorities for areas in which the restaurants
are located. Each restaurant requires appropriate licenses from regulatory authorities allowing it to sell beer, wine, and liquor
and each restaurant requires food service licenses from local health authorities. Majority of our licenses to sell alcoholic
beverages must renewed annually and may be suspended or revoked at any time for cause, including violation by us or our
team members of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age
of team members or patrons who may serve or be served alcoholic beverages, the serving of alcoholic beverages to visibly
intoxicated patrons, advertising, wholesale purchasing, and inventory control. In order to reduce this risk, restaurant team
members are trained in standardized operating procedures designed to assure compliance with all applicable codes and
regulations. We have not encountered any material problems relating to alcoholic beverage licenses or permits to date.

We are also subject to laws governing our relationship with team members. Our failure to comply with federal, state, and
local employment laws and regulations may subject us to losses and harm our brands. The laws and regulations govern such
matters as wage and hour requirements; workers’ compensation insurance; unemployment and other taxes; working and
safety conditions; overtime; and citizenship and immigration status. Significant additional government-imposed regulations
under the Fair Labor Standards Act and similar laws related to minimum wages, overtime, rest breaks, paid leaves of absence,
and mandated health benefits may also impact the performance of our operations. In addition, team member claims based
on, among other things, discrimination, harassment, wrongful termination, wage, hour requirements, and payments to team
members who receive gratuities, may divert financial and management resources and adversely affect operations. The losses
that may be incurred as a result of any violation of such governmental regulations by the Company are difficult to quantify. To
our knowledge, we are in compliance in all material respects with all applicable federal, state, and local laws affecting our
business.

Compliance with these laws and regulations may lead to increased costs and operational complexity and may increase our
exposure to governmental investigations or litigation. We may also be subject, in certain states, to “dram shop” statutes,
which generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive
general liability insurance which we believe is consistent with coverage carried by other companies in the restaurant industry
of similar size and scope of operations. Even though we carry liquor liability insurance, a judgment against us under a “dram
shop” statute in excess of our liability coverage could have a material adverse effect on our operations.

ITEM 1A. RISK FACTORS

This Form 10-K, including the discussions contained in Items 1 and 7, contains various “forward-looking statements” that
are based on current expectations or beliefs concerning future events. Such statements can be identified by the use of
terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,”
“project,” “will,” “forecast” and similar words or expressions. Our forward-looking statements generally relate to our
growth strategy, financial results, sales efforts, franchise expectations, restaurant openings and related expense, and cash
requirements. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could
be materially different. While it is not possible to foresee all of the factors that may cause actual results to differ from our
forward-looking statements, such factors include, among others, the risk factors that follow. Investors are cautioned that all
forward-looking statements involve risks and uncertainties and speak only as of the date on which they are made, and we do
not undertake any obligation to update any forward-looking statement.

Risks Related to Our Business and Industry

Our Financial Results Depend Significantly Upon the Success of Our Existing and New Restaurants

Future growth in our revenue and profits will depend on our ability to maintain or grow sales and efficiently manage costs in
our existing and new restaurants. Currently, we have 26 Bagger Dave’s restaurant and 42 DRH-owned BWW
restaurants. The results achieved by our current restaurants may not be indicative of longer-term performance or the potential
market acceptance of our restaurant concepts in other locations. Additionally, the success of one restaurant concept may not
be indicative or predictive of the success of the other.

The success of our restaurants depends principally upon generating and maintaining guest traffic, loyalty, and achieving
positive margins. Significant factors that might adversely affect guest traffic and loyalty and profit margins include:

●

economic conditions, including housing market downturns, rising unemployment rates, lower disposable
income, credit conditions, fuel prices and consumer confidence and other events or factors that adversely affect
consumer spending in the markets we serve;

competition in the restaurant industry, particularly in the casual and fast-casual dining segments;

changes in consumer preferences;

our guests’ failure to accept menu price increases that we may make to offset increases in certain operating
costs;

our reputation and consumer perception of our concepts’ offerings in terms of quality, price, value, ambience
and service; and

our guests’ actual experiences from dining in our restaurants.

Our restaurants are also susceptible to increases in certain key operating expenses that are either wholly or partially beyond
our control, including:

●

food and other raw materials costs, many of which we cannot effectively hedge;

compensation costs, including wage, workers’ compensation, health care and other benefits expenses;

rent expenses and construction, remodeling, maintenance and other costs under leases for our new and existing
restaurants;

compliance costs as a result of changes in regulatory or industry standards;

energy, water and other utility costs;

costs for insurance (including health, liability and workers’ compensation);

●

information technology and other logistical costs; and

expenses due to litigation against us.

We May Not Be Able to Manage Our Growth

Our expansion strategy will depend upon our ability to open and operate additional restaurants profitably. The opening of
new restaurants will depend on a number of factors, many of which are beyond our control. These factors include, among
others, the availability of management, restaurant staff, and other personnel, the cost and availability of suitable restaurant
locations, cost-effective and timely planning, design and build out of restaurants, acceptable leasing terms, acceptable
financing, and securing required governmental permits. Although we have formulated our business plans and expansion
strategies based on certain estimates and assumptions we believe are reasonable, we anticipate that we will be subject to
changing conditions that will cause certain of these estimates and assumptions to be incorrect. For example, our restaurants
may not open at the planned time due to factors beyond our control, including, among other factors, site selection, BWLD’s
approval with respect to new BWW openings, negotiations with landlords, and construction or permitting delays.

We May Not Be Successful When Entering New Markets

When expanding the Bagger Dave's and BWW concepts, we will enter new markets in which we may have limited or no
operating experience. There can be no assurance that we will be able to achieve success and/or profitability in our new
markets or in our new restaurants. The success of these new restaurants will be affected by the different competitive
conditions, consumer tastes, and discretionary spending patterns within the new markets, as well as by our ability to generate
market awareness of the Bagger Dave's and BWW brands. New restaurants typically require several months of operation
before achieving normal levels of profitability. When we enter highly competitive new markets or territories in which we
have not yet established a market presence, the realization of our revenue targets and desired profit margins may be more
susceptible to volatility and/or more prolonged than anticipated.

Competition in the Restaurant Industry May Affect Our Ability to Compete Effectively

The restaurant industry is intensely competitive. We believe we compete primarily with regional and local sports bars, burger
establishments, casual dining concepts, and fast-casual establishments. Competition from “better burger” establishments has
recently been particularly intense. Many of our direct and indirect competitors are well-established national, regional, or
local chains with a greater market presence than us. Further, some competitors have substantially greater financial, marketing,
and other resources than us. In addition, independent owners of local or regional establishments may enter the wing-based or
burger-based restaurant businesses without significant barriers to entry and such establishments may provide price
competition for our restaurants. Competition in the casual dining, fast-casual, and quick-service segments of the restaurant
industry is expected to remain intense with respect to price, service, location, concept, and the type and quality of food. We
also face intense competition for real estate sites, qualified management personnel, and hourly restaurant staff.

New Restaurants Added to Our Existing Markets May Take Sales From Existing Restaurants

New restaurants added to our existing markets, whether by us or others, may take sales away from our existing
restaurants. Because we intend to open restaurants in our existing markets, and others may intend the same, this may impact
revenue earned by our existing restaurants.

Higher-Than-Anticipated Costs Associated With the Opening of New Restaurants or With the Closing, Relocating, or
Remodeling of Existing Restaurants May Adversely Affect Our Results of Operations

Our revenue and expenses may be significantly impacted by the location, number, and timing of the opening of new
restaurants and the closing, relocating, and remodeling of existing restaurants. We incur substantial pre-opening expenses
each time we open a new restaurant and will incur other expenses if we close, relocate or remodel existing restaurants. These
expenses are generally higher when we open restaurants in new markets, but the costs of opening, closing, relocating, or
remodeling any of our restaurants may be higher than anticipated. An increase in such expenses could have an adverse effect
on our results of operations.

Future Acquisitions May Have Unanticipated Consequences That Could Harm Our Business and Our Financial
Condition

We may seek to selectively acquire existing BWW restaurants. To do so, we would need to identify suitable acquisition
candidates, negotiate acceptable acquisition terms, and obtain appropriate financing as needed. Any acquisitions we pursue,
whether successfully completed or not, may involve risks, including:

●

material adverse effects on our operating results, particularly in the fiscal quarters immediately following the
acquisition as the acquired restaurants are integrated into our operations;

customary closing and indemnification risks associated with any acquisition;

funds used pursuing acquisitions we are ultimately unable to consummate because the transaction is subject to
a right of first refusal in favor of our franchisor, BWLD; and

diversion of management’s attention from other business concerns.

Future acquisitions of existing restaurants, which may be accomplished through a cash purchase transaction, the issuance of
our equity securities, or a combination of both, could result in potentially dilutive issuances of our equity securities, the
incurrence of debt and contingent liabilities, and impairment charges related to intangible assets, any of which could harm
our business and financial condition.

We May Suffer Negative Consequences if New Restaurants Do Not Open in a Timely Manner

If we are unable to successfully open new restaurants in a timely manner, our revenue growth rate and profits may be
adversely affected. We must open restaurants in a timely and profitable manner to successfully expand our business. In the
past, we have experienced delays in restaurant openings and we may face similar delays in the future. These delays may
trigger material financial penalties assessed against us by BWLD as provided in our ADA. These delays may also not meet
market expectations, which may negatively affect our stock price. Our ability to expand successfully and in a timely manner
will depend on a number of factors, many of which are beyond our control. A few of the factors are listed below:

●

Locating and securing quality locations in new and existing markets;

Negotiating acceptable leases or purchase agreements;

Securing acceptable financing for new locations;

Cost-effective and timely planning, design, and build-out of restaurants;

Attracting, recruiting, training, and retaining qualified team members;

Hiring reputable and satisfactory construction contractors;

Competition in new and existing markets;

Obtaining and maintaining required local, state, and federal government approvals and permits related to the
construction of sites and the sale of food and alcoholic beverages;

Creating brand awareness in new markets; and

General economic conditions.

The Loss of Key Executives Could Affect Our Performance

Our success depends substantially on the contributions and abilities of key executives and other team members. The loss of
any of our executive officers could jeopardize our ability to meet our financial targets. In particular, we are highly dependent
upon the services of T. Michael Ansley, David G. Burke, and Jason T. Curtis. We do not have employment agreements with
these individuals or any of our other team members. Our inability to retain the full-time services of any of these people or to

attract other qualified executives could have an adverse effect on us, and there would likely be a difficult transition period in
finding suitable replacements for any of them.

We May Not Be Able to Attract and Retain Qualified Team Members to Operate and Manage Our Restaurants

The success of our restaurants depends on our ability to attract, motivate, develop, and retain a sufficient number of qualified
restaurant team members, including managers and hourly team members. The inability to recruit, develop, and retain these
individuals may delay the planned openings of new restaurants or result in high team member turnover in existing restaurants,
thus increasing the cost to efficiently operate our restaurants. This could inhibit our expansion strategy and business
performance and negatively impact our operating results

Fluctuations in the Cost of Food Could Impact Operating Results

Our primary food products are fresh bone-in chicken wings, ground beef, and potatoes. Our food, beverage, and packaging
costs could be significantly affected by increases in the cost of fresh chicken wings and ground beef, which can result from
a number of factors, including but not limited to, seasonality, cost of corn and grain, animal disease, drought and other weather
phenomena, increase in demand domestically and internationally, and other factors that may affect availability. Additionally,
if there is a significant rise in the price of chicken wings or ground beef, and we are unable to successfully adjust menu prices
or menu mix or otherwise make operational adjustments to account for the higher wing and beef prices, our operating results
could be adversely affected. We also depend on our franchisor, BWLD, as it relates to chicken wings, to negotiate prices
and deliver product to us at a reasonable cost. Chicken wing prices per pound averaged $1.53 in 2014, $0.23 lower than the
average of $1.76 in 2013. BWLD currently purchases and secures for its franchisees chicken wings at market price.

Shortages or Interruptions in the Availability and Delivery of Food and Other Supplies May Increase Costs or Reduce
Revenue

Possible shortages or interruptions in the supply of food items and other supplies to our restaurants caused by inclement
weather, terrorist attacks, natural disasters such as floods, drought, and hurricanes, pandemics, the inability of our vendors to
obtain credit in a tightened credit market, food safety warnings or advisories, or the prospect of such pronouncements, or
other conditions beyond our control, could adversely affect the availability, quality, and cost of items we buy and the
operations of our restaurants. Our inability to effectively manage supply chain risk could increase our costs and limit the
availability of products critical to our restaurant operations.

Our Success Depends Substantially on the Value of Our Brands and Unfavorable Publicity Could Harm Our Business

Multi-unit restaurant businesses such as ours can be adversely affected by publicity resulting from complaints, litigation, or
general publicity regarding poor food quality, food-borne illness, personal injury, food tampering, adverse health effects of
consumption of various food products or high-calorie foods (including obesity), or other concerns. Negative publicity from
traditional media or online social network postings may also result from actual or alleged incidents or events taking place in
our restaurants.

There has been a marked increase in the use of social media platforms and similar devices, including weblogs (blogs), social
media websites, and other forms of Internet-based communications which allow individuals access to a broad audience of
consumers and other interested persons. Consumers value readily available information concerning goods and services that
they have or plan to purchase, and may act on such information without further investigation or authentication. The
availability of information on social media platforms is virtually immediate as is its impact. Many social media platforms
immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the
content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless
and readily available. Information concerning our Company may be posted on such platforms at any time. Information
posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects, or
business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms also
could be used for dissemination of trade secret information, compromising valuable company assets. In sum, the
dissemination of information online could harm our business, prospects, financial condition, and results of operations,
regardless of the information’s accuracy.

Regardless of whether any public allegations or complaints are valid, unfavorable publicity relating to a number of our
restaurants, or only to a single restaurant, could adversely affect public perception of the entire brand. Adverse publicity and
its effect on overall consumer perceptions of food safety, or our failure to respond effectively to adverse publicity, could have
a material adverse effect on our business. We must protect and grow the value of our brands to continue to be successful in

the future. Any incident that erodes consumer trust in or affinity for our brands could significantly reduce their value. If
consumers perceive or experience a reduction in food quality, service, ambiance, or in any way believe we failed to deliver
a consistently positive experience, the value of our brands could suffer.

Increases in Our Compensation Costs, Including as a Result of Changes in Government Regulation, Could Slow Our
Growth or Harm Our Business

We are subject to a wide range of compensation costs. Because our compensation costs are, as a percentage of revenue,
higher than other industries, we may be significantly harmed by compensation cost increases. Unfavorable fluctuations in
market conditions, availability of such insurance, or changes in state and/or federal regulations could significantly increase
our insurance premiums. In addition, we are subject to the risk of employment-related litigation at both the state and federal
levels, including claims styled as class action lawsuits, which are more costly to defend. Also, some employment-related
claims in the area of wage and hour disputes are not insurable risks.

Significant increases in health care costs may also continue to occur, and we can provide no assurance that we will be able
to effectively contain those costs. Further, we are continuing to assess the impact of recently-adopted federal health care
legislation on our health care benefit costs, and significant increases in such costs could adversely impact our operating
results.

In addition, many of our restaurant personnel are hourly team members subject to various minimum wage requirements or
changes to existing tip credit laws. Mandated increases in minimum wage levels and changes to the tip credit laws, which
dictate the amounts an employer is permitted to assume an team member receives in tips when calculating the team member’s
hourly wage for minimum wage compliance purposes, have recently been and continue to be proposed and implemented at
both federal and state government levels. Continued minimum wage increases or changes to allowable tip credits may further
increase our compensation costs or effective tax rate.

Various states in which we operate are considering or have already adopted new immigration laws, and the U.S. Congress
and Department of Homeland Security from time to time consider or implement changes to federal immigration laws,
regulations, or enforcement programs as well. Some of these changes may increase our obligations for compliance and
oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability
of potential team members. Although we require all team members to provide us with government-specified documentation
evidencing their employment eligibility, some of our team members may, without our knowledge, be unauthorized team
members. Unauthorized team members are subject to deportation and may subject us to fines or penalties, and if any of our
team members are found to be unauthorized, we could experience adverse publicity that negatively impacts our brand and
may make it more difficult to hire and keep qualified team members. Termination of a significant number of team members
that, unbeknownst to us, were unauthorized team members may disrupt our operations, cause temporary increases in our
compensation costs as we train new team members and result in additional adverse publicity. Our financial performance
could be materially harmed as a result of any of these factors.

Changes in Public Health Concerns and Legislation and Regulations Requiring the Provision of Nutritional Information
May Impact Our Performance

Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet
and health or new information regarding the health effects of consuming our menu offerings. These changes have resulted
in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of
our menu offerings, or laws and regulations requiring us to disclose the nutritional content of our food offerings. For example,
a number of states, counties, and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose
certain nutritional information available to guests, or have enacted legislation restricting the use of certain types of ingredients
in restaurants. The U.S. health care reform law included nation-wide menu labeling and nutrition disclosure requirements as
well, and our restaurants will be covered by these national requirements when they go into effect. The final rule was published
on December 1, 2014 and requires implementation by December 1, 2015. Although the federal legislation is intended to
preempt conflicting state or local laws on nutrition labeling, until we are required to comply with the federal law, we will be
subject to a patchwork of state and local laws and regulations regarding nutritional content disclosure requirements. Many
of these requirements are inconsistent or are interpreted differently from one jurisdiction to another. The effect of such
labeling requirements on consumer choices, if any, is unclear at this time. We cannot make any assurances regarding our
ability to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient
content disclosure requirements and to adapt our menu offerings to trends in eating habits. The imposition of menu-labeling
laws could have an adverse effect on our results of operations and financial position, as well as the restaurant industry in
general.

Multiple jurisdictions in which we operate could adopt recently enacted new requirements that require us to adopt and
implement a Hazard Analysis and Critical Control Points (“HACCP”) system for managing food safety and quality. HACCP
refers to a management system in which food safety is addressed through the analysis and control of potential hazards from
production, procurement, and handling, to manufacturing, distribution, and consumption of the finished product. We expect
to incur certain costs to comply with these regulations and these costs may be more than we anticipate. If we fail to comply
with these laws or regulations, our business could experience a material adverse effect.

Further, growing movements to change laws relating to alcohol may result in a decline in alcohol consumption at our
restaurants or increase the number of dram shop claims made against us, either of which may negatively impact operations
or result in the loss of liquor licenses.

Changes in Consumer Preferences or Discretionary Consumer Spending Could Harm Our Performance

Our success depends, in part, upon the continued popularity of our chicken and boneless wings, hamburgers and turkey
burgers, other food and beverage items, and the appeal of our restaurant concepts. We also depend on trends toward
consumers eating away from home. Shifts in these consumer preferences could negatively affect our future
profitability. Such shifts could be based on health concerns related to the cholesterol, carbohydrate, fat, calorie, or salt content
of certain food items, including items featured on our menu. Negative publicity over the health aspects of such food items
may adversely affect consumer demand for our menu items and could result in a decrease in guest traffic to our restaurants,
which could materially harm our business. In addition, our success depends, to a significant extent, on numerous factors
affecting discretionary consumer spending, general economic conditions (including the continuing effects of the recent
recession), disposable consumer income, and consumer confidence. A decline in consumer spending or in economic
conditions could reduce guest traffic or impose practical limits on pricing, either of which could harm our business, financial
condition, operating results, or cash flow.

Actions by Our Franchisor Could Negatively Affect Our Business and Operating Results

We are economically dependent on retaining our franchise rights with BWLD. Our DRH-owned BWW restaurant operations
depend, in part, on decisions made by our franchisor, including changes of distributors, food menu items and prices, policies
and procedures, and advertising programs. Business decisions made by BWLD could adversely impact our operating
performance and profitability. Under our ADA, BWLD has the right to immediately terminate the ADA if, among other
things, we are unable to comply with the development schedule or if one of the Franchise Agreements entered into pursuant
to the area ADA is terminated. Termination of the ADA could adversely affect our growth strategy and, in turn, our financial
condition. Additionally, the ADA and the individual Franchise Agreements provide BWLD with the authority to approve the
location selected for our future BWLD franchises, as well as approve the design of the individual restaurant. BWLD must
give its consent prior to the opening of a new BWW restaurant and, once the restaurant is open, we are subject to various
operational requirements, including the use of specific suppliers and products. Delays in the approval of our locations or pre-
opening approval, as well as changes to the operational requirements, may impact our operating performance.

Our Operating Results May Fluctuate Due to the Timing of Special Events

Our operating results depend, in part, on special events, such as the Super Bowl® and other sporting events viewed by our
guests in our restaurants, including those sponsored by the National Football League, Major League Baseball, National
Basketball Association, National Hockey League, and National Collegiate Athletic Association. Interruptions in the viewing
of these professional sporting league events due to strikes or lockouts may impact our business and operating
results. Additionally, our results are subject to fluctuations based on the dates of sporting events and their availability for
viewing through broadcast, satellite, and cable networks. Historically, sales in most of our restaurants have been higher
during fall and winter months based on the relative popularity and extent of national, regional, and local sporting and other
events in the geographic regions in which we currently operate.

Our Inability to Renew Existing Leases or Enter Into New Leases For New or Relocated Restaurants on Favorable Terms
May Adversely Affect Our Results of Operations

As of the date of December 28, 2014, 67 of our 68 restaurants are located on leased premises and are subject to varying lease-
specific arrangements. For example, some of the leases require base rent that is subject to increase based on market factors,
and other leases include base rent with specified periodic increases. Some leases are subject to renewals which could involve
substantial increases. Additionally, a few leases require contingent rent based on a percentage of gross sales. When our
leases expire in the future, we will evaluate the desirability of renewing such leases. While we currently expect to pursue all
renewal options, no guarantee can be given that such leases will be renewed or, if renewed, that rents will not increase

substantially. The success of our restaurants depends in large part on their leased locations. As demographic and economic
patterns change, current leased locations may or may not continue to be attractive or profitable. Possible declines in trade
areas where our restaurants are located or adverse economic conditions in surrounding areas could result in reduced revenue
in those locations. In addition, desirable lease locations for new restaurant openings or for the relocation of existing
restaurants may not be available at an acceptable cost when we identify a particular opportunity for a new restaurant or
relocation.

Economic Conditions Could Have a Material Adverse Impact on Our Landlords in Retail Centers in Which We Are
Located

Our landlords may be unable to obtain financing or remain in good standing under their existing financing arrangements,
resulting in failures to pay required construction contributions or satisfy other lease covenants to us. If our landlords fail to
satisfy required co-tenancies, such failures may result in us terminating leases or delaying openings in these locations. Also,
decreases in total tenant occupancy in retail centers in which we are located may affect guest traffic at our restaurants. All
of these factors could have a material adverse impact on our operations.

A Decline in Visitors to Any of the Business Districts Near the Locations of Our Restaurants Could Negatively Affect Our
Restaurant Sales

Some of our restaurants are located near high-activity areas such as retail centers, big-box shopping centers, and entertainment
centers. We depend on high visitor rates at these businesses to attract guests to our restaurants. If visitors to these centers
decline due to economic conditions, closure of big-box retailers, road construction, changes in consumer preferences or
shopping patterns, changes in discretionary consumer spending or otherwise, our restaurant sales in these areas could decline
significantly and adversely affect the results of our operations.

Because Many of Our Restaurants are Concentrated in Local or Regional Areas, We are Susceptible to Economic and
Other Trends and Developments, Including Adverse Weather Conditions, in These Areas

Our financial performance is highly dependent on restaurants located in Florida, Illinois, Indiana, and Michigan. As a result,
adverse economic conditions in any of these areas could have a material adverse effect on our overall results of operations. In
recent years, certain of these states have been more negatively impacted by the housing decline, high unemployment rates,
and the overall economic crisis than other geographic areas. In addition, other regional occurrences such as local strikes,
terrorist attacks, increases in energy prices, adverse weather conditions, hurricanes, droughts, or other natural or man-made
disasters have occurred. In particular, adverse weather conditions can impact guest traffic at our restaurants, cause the
temporary underutilization of certain seating areas, and, in more severe cases, cause temporary restaurant closures, sometimes
for prolonged periods. As of December 28, 2014, approximately 78.8% of our total restaurants are located in Illinois, Indiana
and Michigan, which are particularly susceptible to snowfall, and approximately 21.2% of our total restaurants are located in
Florida, which is particularly susceptible to hurricanes.

Legal Actions Could Have an Adverse Effect on Us

We could face legal action from government agencies, team members, guests, or other parties. Many state and federal laws
govern our industry, and if we fail to comply with these laws, we could be liable for damages or penalties. Further, we may
face litigation from guests alleging that we were responsible for an illness or injury they suffered at or after a visit to our
restaurants, or alleging that we are not complying with regulations governing our food quality or operations. We may also
face employment-related litigation, including claims of age discrimination, sexual harassment, gender discrimination,
immigration violations, or other local, state, and federal labor law violations.

We May Not Be Able to Obtain and Maintain Licenses and Permits Necessary to Operate Our Restaurants

The restaurant industry is subject to various federal, state, and local government licensure and permitting requirements,
including those relating to the sale of food and alcoholic beverages. The failure to obtain and maintain these licenses, permits,
and approvals, including food and liquor licenses, could adversely affect our operating results. Difficulties or failure to obtain
any required licenses, permits, or other government approvals could delay or result in our decision to cancel the opening of
new restaurants. Local authorities may revoke, suspend, or deny renewal of our food and liquor licenses if they determine
that our conduct violates applicable regulations.

The Sale of Alcoholic Beverages at Our Restaurants Subjects Us to Additional Regulations and Potential Liability

For fiscal year 2014, approximately 18.2% of our consolidated restaurant sales were attributable to the sale of alcoholic
beverages. Our restaurants sell alcoholic beverages, as such, we are required to comply with the alcohol licensing
requirements of the federal government, states, and municipalities where our restaurants are located. Alcoholic beverage
control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a
license and permit to sell alcoholic beverages on the premises and to provide service for extended hours and on
Sundays. Typically, the licenses are renewed annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of
guests and team members, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage,
and dispensing of alcoholic beverages. If we fail to comply with federal, state, or local regulations, our licenses may be
revoked and we may be forced to terminate the sale of alcoholic beverages at one or more of our restaurants.

In certain states, we are subject to “dram shop” statutes, which generally allow a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some
dram shop litigation against restaurant companies has resulted in significant judgments, including punitive damages.

We May Not Be Able to Protect Our Trademarks, Service Marks, and Trade Secrets

We place considerable value on our trademarks, service marks, and trade secrets. We intend to actively enforce and defend
our intellectual property, although we may not always be successful. We attempt to protect our recipes as trade secrets by,
among other things, requiring confidentiality agreements with our suppliers and executive officers. However, we cannot be
sure that we will be able to successfully enforce our rights under our marks or prevent competitors from misappropriating
our recipes, nor can we be sure that out methods of safeguarding our information are adequate and effective. We also cannot
be sure that our marks are valuable; that using our marks does not, or will not, violate others' marks; that the registrations of
our marks would be upheld if challenged; or that we would not be prevented from using our marks in areas of the country
where others might have already established rights to them. Any of these uncertainties could have an adverse effect on us
and our expansion strategy.

We Are Dependent on Information Technology and Any Material Failure of That Technology Could Impair Our Ability
to Efficiently Operate Our Business

We rely on information systems across our operations, including, for example, point-of-sale processing in our restaurants,
management of our supply chain, collection of cash, payment of obligations, and various other processes and procedures. Our
ability to efficiently manage our business depends significantly on the reliability and capacity of these systems. The failure
of these systems to operate effectively, problems with maintenance, upgrading or transitioning to replacement systems, or a
breach in security of these systems could cause delays in guest service and reduce efficiency in our operations. Significant
capital investments might be required to remediate any problems.

Our Ability to Raise Capital in the Future May Be Limited, Which Could Adversely Impact Our Business

Changes in our restaurant operations, lower than anticipated restaurant sales, increased food or compensation costs, increased
property expenses, acceleration of our expansion plans, or other events, including those described in this Annual Report, may
cause us to seek additional debt or equity financing on an accelerated basis. Financing may not be available to us on
acceptable terms, and our failure to raise capital when needed could negatively impact our restaurant growth plans as well as
our financial condition and the results of operations. Additional equity financing, if available, may be dilutive to the holders
of our common stock. Debt financing may involve significant cash payment obligations, covenants, and financial ratios that
may restrict our ability to operate and grow our business.

There Can Be No Assurances That, in the Future, We Will Be in Compliance With All Covenants of Our Current or
Future Debt Agreements or That Our Lenders Will Waive Any Violations of Such Covenants

Non-compliance with our debt covenants could have a material adverse effect on our business, results of operations, and
financial condition. Non-compliance may result in us being in default under our debt agreements, which could cause a
substantial financial burden by requiring us to repay our debt earlier than otherwise anticipated.

Our Current Insurance May Not Provide Adequate Levels of Coverage Against Claims

We currently maintain insurance that is customary and required in our franchise agreements and leases. However, there are
types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure
against, such as losses due to natural disasters. Such damages could have a material adverse effect on our business and the
results of operations. Additionally, there is no assurance that we will be able to maintain our current coverage at acceptable
premium rates or that any coverage will be available to us in the future.

An Impairment in the Carrying Value of Our Fixed Assets, Intangible Assets or Goodwill Could Adversely Affect Our
Financial Condition and Consolidated Results of Operations

Goodwill represents the excess of cost over the fair value of identified net assets of business acquired. We review goodwill
for impairment annually, or whenever circumstances change in a way which could indicate that impairment may have
occurred. Goodwill is tested at the reporting unit level. We identify potential goodwill impairments by comparing the fair
value of the reporting unit to its carrying amount, which includes goodwill and other intangible assets. If the carrying amount
of the reporting unit exceeds the fair value, this is an indication that impairment may exist. We calculate the amount of the
impairment by comparing the fair value of the assets and liabilities to the fair value of the reporting unit. The fair value of
the reporting unit in excess of the value of the assets and liabilities is the implied fair value of the goodwill. If this amount is
less than the carrying amount of goodwill, impairment is recognized for the difference. A significant amount of judgment is
involved in determining if an indication of impairment exists. Factors may include, among others: a significant decline in our
expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse
change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant
asset group within a reporting unit; and slower growth rates. Any adverse change in these factors would have a significant
impact on the recoverability of these assets and negatively affect our financial condition and consolidated results of
operations. We are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been
impaired.

We evaluate the useful lives of our fixed assets and intangible assets to determine if they are definite- or indefinite-lived.
Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of
obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results
in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required
maintenance expenditures, and the expected lives of other related groups of assets. We cannot accurately predict the amount
and timing of any impairment of assets. Should the value of fixed assets or intangible assets become impaired, there could
be an adverse effect on our financial condition and consolidated results of operations.

We May Incur Costs Resulting From Security Risks We Face in Connection With Our Electronic Processing and
Transmission of Confidential Guest Information

We accept electronic payment cards from our guests in our restaurants. For the fiscal year ended December 28, 2014,
approximately 66.6% of our sales were attributable to credit/debit card transactions, and credit/debit card usage could
continue to increase. A number of restaurant operators and retailers have experienced actual or potential security breaches in
which credit/debit card information may have been stolen. While we have taken reasonable steps to prevent the occurrence
of security breaches in this respect, we may in the future become subject to claims for purportedly fraudulent transactions
arising out of the actual or alleged theft of credit/debit card information, and we may also be subject to lawsuits or other
proceedings in the future relating to these types of incidents. Proceedings related to theft of credit/debit card information
may be brought by payment card providers, banks, and credit unions that issue cards, cardholders (either individually or as
part of a class action lawsuit), and federal and state regulators. Any such proceedings could distract our management team
members from running our business and cause us to incur significant unplanned losses and expenses.

We also receive and maintain certain personal information about our guests and team members. The use of this information
by us is regulated at the federal and state levels. If our security and information systems are compromised or our team
members fail to comply with these laws and regulations and this information is obtained by unauthorized persons or used
inappropriately, it could adversely affect our reputation, as well as the results of operations, and could result in litigation
against us or the imposition of penalties. In addition, our ability to accept credit/debit cards as payment in our restaurants
and online depends on us maintaining our compliance status with standards set by the PCI Security Standards Council. These
standards, set by a consortium of the major credit card companies, require certain levels of system security and procedures
to protect our guests’ credit/debit card information as well as other personal information. Privacy and information security
laws and regulations change over time, and compliance with those changes may result in cost increases due to necessary
system and process changes.

We have Identified a Material Weakness in Our Internal Control Over Financial Reporting. Failure to Establish and
Maintain Our Internal Control Over Financial Reporting Could Harm Our Business and Financial Results.

In connection with the preparation of the financial statements included in this Form 10-K, we identified a material weakness
in our internal control over financial reporting for the year ended December 28, 2014.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not
be prevented or detected on a timely basis. Our management has determined that our internal control related to financial
reporting was not effective to ensure the effective design of internal control and that an effective evaluation and review of
complex accounting matters had occurred prior to presentation to our external auditors. Specifically, our initial evaluation of
long-lived assets for potential impairment was not sufficient under generally accepted accounting principles. Further, our
evaluation of the accounting for modifications made under our borrowing arrangements reached an incorrect conclusion and
we did not adequately evaluate the realization of our deferred tax assets. While we do not believe that this affected the
accuracy of our financial statements included in the Annual Report on Form 10-K, this control deficiency could result in a
material misstatement of the financial statements that would not be prevented or detected. This material weakness was
identified in connection with our assessment of the effectiveness of internal control over financial reporting as of December
28, 2014, and has not yet been remediated. However, our management team has reviewed and discussed the identified
material weakness with the Audit Committee and is in the process of developing and implementing an action plan to resolve
it.

Our management team members are responsible for establishing and maintaining effective internal control over financial
reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of
financial reporting for external purposes in accordance with accounting principles generally accepted in the United
States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute
assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an
effective system of internal control over financial reporting could limit our ability to report our financial results accurately
and timely or to detect and prevent fraud. Failure to remediate this material weakness or additional material weaknesses in
internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our stock.

Our Inability or Failure to Effectively Manage Our Marketing Through Social Media Could Materially Adversely Impact
Our Business.

As part of our marketing efforts, we rely on search engine marketing and social media platforms such as Facebook® and
Twitter ® to attract and retain guests. We also are initiating a multi-year effort to implement new technology platforms that
should allow us to digitally engage with our guests and team members and strengthen our marketing and analytics capabilities.
These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues or increased
employee engagement. In addition, a variety of risks are associated with the use of social media, including the improper
disclosure of proprietary information, negative comments about our company, exposure of personally identifiable
information, fraud, or out-of-date information. The inappropriate use of social media vehicles by our guests or team members
could increase our costs, lead to litigation, or result in negative publicity that could damage our reputation.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our main office is located at 27680 Franklin Road, Southfield, Michigan 48034 and our telephone number is (248) 223-9160.
Our main office has approximately 5,340 square feet of office space. We occupy this facility under a lease that ends June 30,
2019. As of March 13, 2015, we operated 68 Company-owned restaurants, 66 of which are leased properties. Lease terms
are between 10- and 20-years, and generally include options to extend the terms. Most of our leases include "exclusive use"
provisions prohibiting our landlords from leasing space to other restaurants that fall within certain specified criteria and
incorporate incremental increases based on time passage and payment of certain occupancy-related expenses.

We own all of the equipment, furnishings, and fixtures in our restaurants. The Company also owns a significant amount of
leasehold improvements in the leased facilities.

As of December 28, 2014, we operated restaurant properties for 35 locations in Michigan, 14 locations in Florida, 13 locations
in Indiana, and four locations in Illinois. Our typical BWW restaurants range in size from 5,300 square feet to 13,500 square
feet and our typical Bagger Dave’s restaurants range in size from 3,800 square feet to 6,100 square feet. The majority of our
restaurants are located in end-cap positions in strip malls, with a few being inline; 23 of our restaurants are situated in a stand-
alone building.

ITEM 3. LEGAL PROCEEDINGS

Occasionally we are a party to various legal actions arising in the ordinary course of our business including claims resulting
from “slip and fall” accidents, employment related claims and claims from guests or team members alleging illness, injury
or other food quality, health or operational concerns. These types of litigation, most of which are covered by insurance, have
not had a material effect on the Company, and as of the date of this Annual Report, we are not a party to any material pending
legal proceedings and are not aware of any claims that could have a materially adverse effect on our financial position, results
of operations or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company's common stock is listed on the NASDAQ Capital Market under the symbol “BAGR”. Prior to April 23, 2013,
the date of our follow-on offering, our common stock was traded on the OTCQB where there was a history of minimal trading
and relatively inactive public market for our stock.

The following table sets forth the high and low bid quotations for our common stock for the fiscal years ended December 28,
2014 and December 29, 2013 as reported by NASDAQ and OTCQB:

2014

2013

High

Low

High

Low

First Quarter ................................................................................. $
Second Quarter .............................................................................
Third Quarter ................................................................................
Fourth Quarter ..............................................................................

5.85 $
5.50
5.00
5.42

4.42 $
3.99
4.19
4.61

4.11 $
8.31
8.24
7.90

3.95
4.00
6.03
4.77

Trading during Q1 2013 were very limited and sporadic while our stock was traded on the OTCQB. These bid prices reflect
inter-dealer prices, without retail mark ups or mark downs or commissions and may not represent actual transactions.

Holders

As of March 6, 2015, there were approximately 457 record holders of 26,187,199 shares of the Company's common stock,
excluding shareholders whose stock is held either in nominee name and/or street name brokerage accounts.

Dividends

We have not declared or paid any cash dividends on our common stock. It is our policy to preserve cash for development and
other working capital needs. Currently, DRH does not have plans to pay any cash dividends. Our future dividend policy will
be determined by our Board of Directors and will depend on various factors, including our results of operations, financial
condition, anticipated cash needs, and plans for expansion.

Performance Graph

The following graph compares the cumulative total stockholder return from April 15, 2013 through December 28, 2014. The
graph below shows the cumulative total stockholder return assuming the investment of $100 on the date specified (assuming
reinvestment of dividends) in each of DRH common stock, the NASDAQ Composite Index and S&P 600 Restaurants Index.
The comparisons in the graph below are based upon historical data and are not indicative of, or intended to forecast, future
performance of our common stock.

Diversified Restaurant Holdings, Inc. ................................................
S&P 600 Restaurants .........................................................................
NASDAQ Composite .........................................................................

4/15/2013
$100.00
100.00
100.00

12/29/2013
$95.40
138.17
127.93

12/28/2014
$99.80
174.54
147.24

Equity Compensation Plan Information

The following table sets forth information, as of December 28, 2014, with respect to compensation plans (including individual
compensation arrangements) under which our equity securities are authorized for issuance, aggregated as follows:

Number of
securities
to beissued
upon exercise
of outstanding
options,
warrants and
rights

Weighted-
average
exercise
price of
outstanding
options,
warrants and
rights

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))

N/A

544,102

Plan Category
Equity compensation plans approved by security holders 1 ...............

Equity compensation plans not approved by security holders 2 .........

210,000 $

2.50

N/A

1 In 2011, our Board of Directors and Stockholders approved the Stock Incentive Plan of 2011 (the “2011 Incentive Plan”)
authorizing the grant of equity-based incentives to employees. The 2011 Incentive Plan permits the grant and award of
750,000 shares of common stock by way of stock options and/or restricted stock.

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

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial and operating data for each of the five fiscal years and are derived from our
audited consolidated financial statements. The following data should be read in conjunction with Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and our audited financial statements included in
Item 8, Consolidated Financial Statements and Supplementary Data, within this Form 10-K. Historical results are not
necessarily indicative of future performance.

Twelve months ended
December 28 December 29 December 30 December 25 December 26

2014

2013

2012

2011

2010

Statements of Operations:
Revenue ................................................... $ 128,413,448 $ 108,886,139 $ 77,447,208 $ 60,707,475 $ 45,248,018
1,606,363
Operating profit (loss) .............................
167,854
Net income (loss) attributable to DRH ....

(642,280)
(1,268,497)

1,581,243
180,099

3,600,163
1,842,186

1,440,277
134,308

Per Share:
Basic earnings (loss) per share ................ $
Diluted earnings (loss) per share ............ $
Weighted average of common shares

(0.05) $
(0.05) $

0.01 $
0.01 $

0.10 $
0.10 $

0.01
0.01

Basic ....................................................
Diluted ................................................

26,092,919
26,092,919

23,937,188
24,058,072

18,949,556 18,902,782 18,871,879
19,091,849 19,055,500 19,052,969

Balance Sheet:
Goodwill .................................................. $ 10,998,630 $
Total assets .............................................. 113,447,034
60,569,814
Total long term obligations .....................

8,578,776 $
92,333,733
42,554,789

8,578,776 $

-
56,544,738 27,350,399 22,354,392
42,106,583 19,205,371 17,926,317

- $

Statement of Cash Flows:
Cash flows provided by (used in)
Operating activities ................................. $ 11,295,253 $
(17,469,345)
Investing activities ..................................
15,299,900
Financing activities .................................

7,180,971 $
(33,950,993)
33,632,167

7,592,621 $ 6,577,016 $
(8,215,522)
1,817,622

(31,228,585)
24,798,795

4,548,762
(5,844,883)
994,403

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. Fiscal year 2014 ended
on December 28, 2014 and comprised 52 weeks, fiscal year 2013 ended on December 29, 2013 and comprised 52 weeks, and
fiscal year 2012 ended December 30, 2012 and comprised 53 weeks.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

The following discussion and analysis of our financial condition should be read in conjunction with our consolidated
financial statements and the related notes to those statements included elsewhere in this document. The following discussion
contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking statements as a result of certain factors,
including those set forth under the heading “Risk Factors” and elsewhere in this document.

Overview

DRH is a fast-growing, multi-concept restaurant company operating two complementary concepts: Bagger Dave’s and BWW.
As the developer, operator and franchisor of Bagger Dave’s and one of the largest franchisees of BWLD, we provide a unique
guest experience in a casual and inviting environment. We are committed to providing value to our guests through offering
generous portions of flavorful food in an upbeat and entertaining atmosphere. We believe Bagger Dave’s and BWW are
uniquely positioned restaurant brands designed to maximize guest appeal. Both restaurant concepts offer competitive price
points and a family-friendly atmosphere, which we believe enables strong performance through economic cycles. We were
incorporated in 2006 and are headquartered in the Detroit metropolitan area. Currently, we have 68 locations in Florida,
Illinois, Indiana, and Michigan.

Our Growth Strategies and Outlook

Our multi-layered strategy is comprised of the following key growth components:

●

pursue disciplined restaurant growth through a combination of both organic expansion and strategic
acquisitions;

deliver comparable restaurant sales growth by providing our guest with an exceptional experience
and executing effective marketing and advertising strategies; and

leverage our infrastructure to grow profit margins

We have an established growth pipeline and a disciplined strategy for opening new restaurants that includes aggressive new
unit development for Bagger Dave’s and the fulfillment of our current franchise agreement with BWLD by opening an
additional eight restaurants in our current markets. We will also evaluate the potential for strategic accretive acquisitions of
Buffalo Wild Wings franchises where we have an opportunity to leverage our operational expertise.

We will continue to expand Bagger Dave’s throughout the Midwest and our priority will be to open locations in markets
where we have existing infrastructure. We will also grow our Buffalo Wild Wings restaurant base under our current ADA.
In addition, we believe our historical track record of acquiring and integrating Buffalo Wild Wings restaurants provides us
with an additional growth opportunity and will seek to take advantage of strategic acquisitions that may be available in the
marketplace.

The Company opened nine new restaurants and acquired three BWW locations in 2014. Over the next three years, we expect
to open between 21 and 25 new Bagger Dave’s restaurants and ten new DRH-owned BWW restaurants (for additional
discussion of our growth strategies and outlook, see the section entitled “Business - Growth Strategy”).

Performance Indicators

We use several metrics to evaluate and improve each restaurant’s performance that include: sales growth, ticket times, guest
satisfaction, hourly compensation costs, and food, beverage, and packaging costs.

We also use the following key performance indicator in evaluating restaurant performance:

●

Comparable Restaurant Sales. We consider a restaurant to be comparable following the eighteenth month of
operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of
restaurants over a specified period of time. Changes in comparable sales can also reflect changes in guest count
trends and changes in average check.

Restaurant Openings

The following table outlines the restaurant unit information for each fiscal year from 2010 through 2015. From our inception
in 2006, we managed, but did not own, nine BWW restaurants, which we acquired in February 2010.

2014

2013

2012

2011

2010

Summary of restaurants open at the

beginning of year

DRH-owned BWW ..............................................
Bagger Dave’s ......................................................
BWW Acquisitions / affiliate restaurants under

common control .................................................
Total ....................................................................

Openings:
DRH-owned BWW ..............................................
Bagger Dave’s ......................................................
BWW Acquisitions ..............................................
Closures ................................................................
Total restaurants ................................................

Our Fiscal Year

36
18

-
54

3
6
3
-
66

33
11

-
44

3
7
-
-
54

22
6

-
28

3
5
8
-
44

19
3

-
22

3
3
-
-
28

7
2

9
18

3
1
-
-
22

Key Financial Definitions

Revenue. Revenue primarily consists of food and beverage sales, and merchandise sales, such as Bagger Dave’s Craft Sodas
and BWW sauce. Revenue is presented net of discounts, such as management and team member meals, associated with each
sale. Revenue in a given period is directly influenced by the number of operating weeks in such period, the number of
restaurants we operate, and comparable restaurant sales growth.

Food, Beverage, and Packaging Costs. Food, beverage, and packaging costs consist primarily of food, beverage, packaging,
and merchandise-related costs. The components of food, beverage, and packaging costs are variable in nature, change with
sales volume, and are subject to increases or decreases based on fluctuations in commodity costs.

Compensation Costs. Compensation costs include restaurant management salaries, front- and back-of-house hourly wages,
and restaurant-level manager bonuses, team member benefits, and payroll taxes.

Occupancy Costs. Occupancy costs include rent charges, both fixed and variable, as well as common area maintenance costs,
property insurance and taxes, the amortization of tenant allowances, and the adjustment to straight-line rent. These expenses
are generally fixed, but a portion may vary with an increase in sales if the lease contains a percentage rent provision.

Other Operating Costs. Other operating costs consist primarily of restaurant-related operating costs, such as supplies, utilities,
repairs and maintenance, travel cost, insurance, credit card fees, recruiting, and security. These costs generally increase with
sales volume but decline as a percentage of revenue. For DRH-owned BWW restaurants, this expense category also includes
franchise royalty and national advertising fund expense.

General and Administrative Expenses. General and administrative expenses include costs associated with corporate and
administrative functions that support our operations, including senior and supervisory management and staff compensation
costs (including stock-based compensation) and benefits, marketing and advertising expenses, travel, legal and professional
fees, information systems, corporate office rent, and other related corporate costs.

Pre-Opening Costs. Restaurant pre-opening costs consist of expenses incurred to open a new restaurant, including manager
salaries, relocation costs, supplies, recruiting expenses, initial new market public relations costs, pre-opening activities, team
member payroll, and related training costs for new team members. Restaurant pre-opening expenses also include rent
recorded during the period between date of possession and the restaurant opening date. In addition, the Company includes
restaurant labor cost that exceed the historical average for the first three months of restaurant operations that are attributable
to training and initial staff turnover.

Depreciation and Amortization. Depreciation and amortization includes depreciation on fixed assets, including equipment
and leasehold improvements, and amortization of certain intangible assets for restaurants.

Interest Expense. Interest expense consists primarily of interest on our outstanding indebtedness and the amortization of our
debt issuance costs, reduced by capitalized interest.

RESULTS OF OPERATIONS

The following table presents the consolidated statements of operations for the fiscal years ended December 28, 2014,
December 29, 2013, and December 30, 2012 with each line item in dollars and as a percentage of revenue.

Fiscal Years-Ended

2014

2013

2012

Total revenue ...................................................................................

100.0%

Operating expenses
Food, beverage, and packaging costs ................................................
Compensation costs ...........................................................................
Occupancy costs ................................................................................
Other operating costs .........................................................................
General and administrative expenses ................................................
Pre-opening costs ..............................................................................
Depreciation and amortization ..........................................................
Loss on disposal of property and equipment .....................................
Total operating expenses ................................................................

28.9%
26.0%
5.6%
21.2%
6.8%
2.7%
8.5%
0.8%
100.5%

30.0%
25.8%
5.9%
19.9%
6.7%
3.0%
7.3%
0.1%
98.7%

31.1%
25.1%
5.5%
19.4%
8.5%
2.3%
5.9%
0.1%
98.0%

Operating profit (loss) .....................................................................

(0.5)%

1.3%

2.0%

Interest expense .................................................................................
Other income, net ..............................................................................

(1.8)%
0.0%

(1.6)%
0.2%

Income (loss) before income taxes ....................................................

(2.3)%

(0.1)%

Income tax provision (benefit) ..........................................................

(1.3)%

(0.2)%

Net income ........................................................................................

(1.0)%

0.1%

(1.7)%
0.0%

0.3%

0.0%

0.3%

Less: (Income) attributable to noncontrolling interest ......................

0.0%

(0.1)%

Net income attributable to DRH ........................................................

(1.0)%

0.1%

0.2%

FISCAL YEAR 2014 COMPARED WITH FISCAL YEAR 2013

Revenue

Total revenue for Fiscal Year 2014 was $128.4 million, an increase of $19.5 million, or 17.9%, over revenue generated during
Fiscal Year 2013. The increase was attributable to increased same store sales, acquisition of three BWW restaurants, and the
opening of nine DRH-owned restaurants (six Bagger Dave’s and three BWW restaurants). $3.4 million of the increase was
attributable to 3.5% same store sales increase for 37 BWW and 12 Bagger Dave’s restaurants. $3.1 million of the increase in
sales was attributable to the acquisition of three BWW restaurants on June 30, 2014. The remaining $13.0 million increase is
a result of restaurants opening within the last 18-months, including 12 Bagger Dave’s and five BWW restaurants. Breaking
down our same store sales increase of 3.5% into components, 3.4% was attributable to price increases from winter and fall
menu rollouts and 0.1% was attributable to increased traffic in our comparable locations.

Operating Expenses

Food, beverage, and packaging costs increased by $4.3 million, or 13.3%, to $37.1 million in Fiscal Year 2014 from $32.7
million in Fiscal Year 2013 as a result of the increase in the number of restaurants and inflationary factors. Food, beverage,
and packaging cost as a percentage of sales decreased to 28.9% in Fiscal Year 2014 from 30.0% in Fiscal Year 2013 primarily
due to lower bone-in chicken wing costs. Average cost per pound for bone-in chicken wings decreased 13.1% to $1.53 in
Fiscal Year 2014 from $1.76 in Fiscal Year 2013.

Compensation costs increased by $5.2 million, or 18.7%, to $33.3 million in Fiscal Year 2014 from $28.1 million in Fiscal
Year 2013. The increase was primarily due to the increase in number of restaurants operating in 2014. Nine new restaurants
were opened and three restaurants were acquired in Fiscal Year 2014. Compensation cost as a percentage of sales increased
to 26.0% in Fiscal Year 2014 from 25.8% in Fiscal Year 2013.

Occupancy costs increased by $0.8 million, or 12.9%, to $7.2 million in Fiscal Year 2014 from $6.4 million in Fiscal Year
2013 primarily due to the increase in the number of restaurants operating in 2014, including the acquisition of three BWW
restaurants. Occupancy cost as a percentage of sales decreased to 5.6% in Fiscal Year 2014 from 5.9% in Fiscal Year 2013
due to the increase of purchased real estate verse leasing of property in late fiscal 2013 and throughout fiscal 2104. In Fourth
Quarter 2014, DRH finalized the sale-leaseback transaction for ten of the twelve Company owned properties, as further
discussed in Note 3 of the Consolidated Financial Statements. We expect the impact of this transaction to increase our Fiscal
2015 occupancy cost by approximately 20.0%.

Other operating costs increased by $5.5 million, or 25.6%, to $27.2 million in Fiscal Year 2014 from $21.7 million in Fiscal
Year 2013 primarily due to the increase in the number of restaurants operating in 2014. Other operating cost as a percentage
of sales increased to 21.2% in Fiscal Year 2014 from 19.9% in Fiscal Year 2013 due to implementing new information
technology initiatives as well as increase in third party costs for hiring and accounts payable processing.

General and administrative expenses increased by $1.5 million, or 20.9%, to $8.8 million in Fiscal Year 2014 from $7.3
million in Fiscal Year 2013 due to additional hiring of support staff for our on-going growth, increased professional fees, a
result of the Florida BWW acquisition, and increased marketing which historically ranges between 2.0% to 2.2% of sales.
General and administrative costs as a percentage of sales increased to 6.8% in Fiscal Year 2014 from 6.7% in Fiscal Year
2013.

Pre-opening costs increased by $0.3 million, or 7.5%, to $3.5 million in Fiscal Year 2014 from $3.2 million in Fiscal Year
2013. The increase in pre-opening costs was due to the timing and costs to open new restaurants during Fiscal Year 2014. The
Company had nine new restaurant openings and two relocations in Fiscal Year 2014 versus ten new restaurant openings and
one relocation openings in Fiscal Year 2013. As a percentage of sales, pre-opening costs decreased to 2.7% in Fiscal Year
2014 from 3.0% in Fiscal Year 2013.

Depreciation and amortization increased by $3.0 million, or 37.4%, to $11.0 million in Fiscal Year 2014 from $8.0 million
in Fiscal Year 2013 primarily due to the increase in the total number of restaurants operating in 2014. Depreciation and
amortization as a percentage of sales increased to 8.5% in Fiscal Year 2014 from 7.3% in Fiscal Year 2013 due to the
increased investment in ground-up development of the restaurants.

Loss on disposal of property and equipment increased by $0.9 million, or 942.3%, to $1.0 million in Fiscal Year 2014 from
$0.1 million in Fiscal Year 2013. The increase was primarily due to a $0.5 million loss from our sale-leaseback transaction
and $0.4 million of which was a direct consequence of transitioning all of our locations to a new point of sale system. Loss

on disposal of property and equipment as a percentage of sales, increased to 0.8% in Fiscal Year 2014 from 0.1% in Fiscal
Year 2013.

Interest and Taxes

Interest expense was $2.3 million and $1.7 million during the years ended December 28, 2014 and December 29, 2013,
respectively. The increase is associated with the $77.0 million senior secured credit facility with RBS Citizens, N.A. (“RBS”),
which was effective December 16, 2014 and includes the write-off of loan fees of $0.3 million. Increased borrowings for new
restaurant development in 2014 was also a contributing factor.

In Fiscal Year 2014, we recorded an income tax benefit of $1.7 million compared with Fiscal Year 2013, when we recorded
an income tax benefit of $0.3 million. The increase in the benefit is primarily due to the increased pre-tax loss and the
increased tip credits.

FISCAL YEAR 2013 COMPARED WITH FISCAL YEAR 2012

Revenue

Total revenue for Fiscal Year 2013 was $108.9 million, an increase of $31.4 million, or 40.6%, over revenue generated during
Fiscal Year 2012. The increase was attributable to $14.9 million from newer restaurants not meeting the criteria for same
store sales, 11 of which opened in 2013 (seven Bagger Dave’s restaurants and four BWW restaurants), $13.4 million in sales
from the acquisition of eight BWW locations in late September 2012, and $3.1 million from same store sales growth. Same
store sales are defined as the year-over-year change in restaurant sales and are only applicable for restaurants that have
operated for at least eighteen months.

Operating Expenses

Food, beverage, and packaging costs increased by $8.6 million, or 35.7%, to $32.7 million in Fiscal Year 2013 from $24.1
million in Fiscal Year 2012 as a result of the increase in the number of restaurants and inflationary factors. Food, beverage,
and packaging cost as a percentage of sales decreased to 30.0% in Fiscal Year 2013 from 31.1% in Fiscal Year 2012 primarily
due to lower bone-in chicken wing costs. Average cost per pound for bone-in chicken wings decreased 10.7% to $1.76 in
Fiscal Year 2013 from $1.97 in Fiscal Year 2012.

Compensation costs increased by $8.7 million, or 44.5%, to $28.1 million in Fiscal Year 2013 from $19.4 million in Fiscal
Year 2012. The increase was primarily due to the increase in staffing required for 10 new restaurants and eight acquired
restaurants. Compensation costs as a percentage of sales increased from 25.1% for Fiscal Year 2012 to 25.8% in Fiscal Year
2013 primarily due to a buildup of restaurant management labor necessary to effectively open a greater number of restaurants.

Occupancy costs increased by $2.1 million, or 48.7%, to $6.4 million in Fiscal Year 2013 from $4.3 million in Fiscal Year
2012 primarily due to the increase in the number of restaurants. Occupancy cost as a percentage of sales increased to 5.9%
in Fiscal Year 2013 from 5.5% in Fiscal Year 2012.

Other operating costs increased by $6.7 million, or 44.4%, to $21.7 million in Fiscal Year 2013 from $15.0 million in Fiscal
Year 2012 primarily due to the increase in the number of restaurants. Other operating costs as a percentage of sales increased
to 19.9% in Fiscal Year 2013 from 19.4% in Fiscal Year 2012.

General and administrative expenses increased by $0.7 million, up 10.4%, to $7.3 million in Fiscal Year 2013 from $6.6
million in Fiscal Year 2012 due to increased marketing and advertising costs demanded by the increase in the number of new
restaurants, enhancements to the corporate staff to support the Company’s growth plans, and non-recurring costs. General
and administrative cost as a percentage of sales decreased to 6.7% in Fiscal Year 2013 from 8.5% in Fiscal Year 2012 due to
the favorable leverage of general and administrative expenses over an expanded revenue base.

Pre-opening costs increased by $1.4 million, or 80.2%, to $3.2 million in Fiscal Year 2013 from $1.8 million in Fiscal Year
2012. The increase in pre-opening costs was due to the timing and costs to open new restaurants during Fiscal Year 2013. The
Company had 10 new restaurant openings and one relocation in Fiscal Year 2013 versus eight restaurant openings in Fiscal
Year 2012. As a percentage of sales, pre-opening costs increased to 3.0% in Fiscal Year 2013 from 2.3% in Fiscal Year
2012. The increase in percent of sales is a consequence of the increased number of new restaurant openings and an increased
average pre-opening cost per restaurant primarily due to our two downtown locations - Detroit, Michigan Bagger Dave’s and
Chicago, Illinois BWW.

Depreciation and amortization increased by $3.4 million, or 73.8%, to $8.0 million in Fiscal Year 2013 from $4.6 million in
Fiscal Year 2012 primarily due to the increase in the total number of restaurants and larger percentage of stand-alone buildings
which require significantly more capital (vs. leasing). Depreciation and amortization as a percentage of sales increased
slightly to 7.3% in Fiscal Year 2013 from 5.9% in Fiscal Year 2012.

Loss on disposal of property and equipment increased by $31,465, or 166.5%, to $98,162 in Fiscal Year 2013 from $36,833
in Fiscal Year 2012. The increase was primarily due to the Fiscal Year 2013 voluntary renovations, which resulted in the
disposal of assets that were not yet fully depreciated. Loss on disposal of property and equipment as a percentage of sales
was 0.1% for both Fiscal Year 2013 and Fiscal Year 2012.

Interest and Taxes

Interest expense was $1.7 million and $1.3 million during the years ended December 29, 2013 and December 30, 2012,
respectively. Interest expense increased due to an increase in debt used for new restaurant development.

In Fiscal Year 2013, we recorded an income tax benefit of $261,450 compared with Fiscal Year 2012, when we recorded an
income tax benefit of $167. The increase in the benefit is primarily due to increased tip credits in 2013.

LIQUIDITY AND CAPITAL RESOURCES; EXPANSION PLANS

On December 16, 2014, the Company entered into a $77.0 million senior secured credit facility with RBS (the “December
2014 Senior Secured Credit Facility”). The December 2014 Senior Secured Credit Facility consist of a $56.0 million term
loan (the “December 2014 Term Loan”), a $20.0 million development line of credit (the “December 2014 DLOC”), and a
$1.0 million revolving line of credit (the “December 2014 RLOC”). The Company used approximately $35.5 million of the
December 2014 Term Loan to refinance existing outstanding debt with RBS and used approximately $20.0 million of the
December 2014 Term Loan to refinance and term out the outstanding balance of the existing development line of credit loan
between the Company and RBS. The remaining balance of the December 2014 Term Loan, approximately $0.5 million,
was used to pay the fees, costs, and expenses associated with the closing of the December 2014 Senior Secured Credit
Facility. The December 2014 Term Loan is for a period of five years. Payments of principal are based upon an 84-month
straight-line amortization schedule, with monthly principal payments of $666,667 plus accrued interest. The interest rate for
the December 2014 Term Loan is LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the
lease adjusted leverage ratio defined in the terms of the agreement. The entire remaining outstanding principal and accrued
interest on the December 2014 Term Loan is due and payable on the maturity date of December 16, 2019. The December
2014 DLOC is for a term of two years and is convertible upon maturity into a term note based on the terms of the loan
agreement at which time monthly princpial payments will be due on a 84-month straight-line amortization schedule, plus
interest through maturity on December 16, 2019. The December 2014 RLOC is for a term of two years and no amount was
outstanding as of December 28, 2014.

We believe the cash flow from operations, the remaining proceeds from the registered offering, proceeds from the sale-lease-
back agreement of $24.6 million, and availability of credit will be sufficient to meet our operational funding, development,
and obligations for at least the next 12 months.

Our capital requirements are primarily dependent upon the pace of our new restaurant growth plan. The new restaurant growth
plan is primarily dependent upon economic conditions, the real estate market, and resources to both develop and operate new
restaurants. In addition to new restaurants, our capital expenditure outlays are also dependent on costs for maintenance,
facility upgrades, capacity enhancements, information technology, and other general corporate capital expenditures.

The amount of capital required to open a new restaurant is largely dependent on whether we build-out an existing leased
space or build from the ground up. Our preference is to find leased space for new restaurant locations but depending on the
availability of real estate in specific markets, we will take advantage of alternative strategies which may include land
purchases, land leases, and ground up construction of a building to house our restaurant operation. Excluding land and
building, we expect the build-out of a new Bagger Dave’s restaurant will, on average, require a total cash investment of $1.1
million to $1.4 million (excluding potential tenant incentives). Similarly, we expect the build-out of a new DRH-owned
BWW restaurant will require an estimated cash investment of $1.9 million to $2.1 million (excluding potential tenant
incentives). We expect to spend approximately $225,000 to $275,000 per restaurant for pre-opening expenses. Depending
on individual lease negotiations, we may receive cash tenant incentives of up to $400,000. The projected cash investment
per restaurant is based on recent opening costs and future projections and may fluctuate based on construction costs specific
to new restaurant locations.

We target a cash on cash return on our initial total capital investment of less than four years. The expected payback is subject
to how quickly we reach our target sales volume and the cost of construction.

Cash flow from operations for fiscal 2014, 2013, 2012 was $11.3 million, $7.2 million, and $7.6 million. Net cash provided
by operating activities consisted primarily of net earnings adjusted for non-cash expenses.

Opening new restaurants, including real estate investments, is our primary use of capital and is estimated to be over 80.0%
of our capital expenditures in 2015. For 2015, we estimate capital expenditures to be between $35.0 million and $40.0 million.
We plan to use the capital as follows: one half for new restaurant openings, currently one Bagger Dave's and one DRH-owned
BWW are under construction; one third for real estate (including the purchase of land and construction of buildings)
associated with new restaurant openings; and the remaining for restaurant remodels, upgrades, relocations and other general
corporate purposes

Although investments in new restaurants are an integral part of our strategic and capital expenditures plan, we also believe
that reinvesting in existing restaurants is an important factor and necessary to maintain the overall positive dining experience
for our guests. Depending on the age of the existing restaurants, upgrades range from $50,000 (for minor interior refreshes)
to $900,000 (for a full remodel of the restaurant). Restaurants are typically upgraded after approximately five to seven years
of operation and fully remodeled after approximately 10 years of operation.

Contractual Obligations

The following table presents a summary of our contractual obligations as of December 28, 2014:

Total
Long-term debt 1 .................................................. $ 61,768,399 $ 8,155,903 $17,870,832 $35,741,664 $

Less than
one year 1 - 3 years 3 - 5 years

After 5
years

Operating lease obligations .................................. 71,714,786 7,555,779 14,390,060 13,178,660 36,590,287

Commitments for restaurants under
development 2 ..................................................... 21,337,296 9,799,380 2,194,506 2,201,258 7,142,152
$154,820,481 $25,511,062 $34,455,398 $51,121,582 $43,732,439

1 Amount represents the expected principal cash payments relating to our long-term debt and do not include any fair value
adjustments or discounts/premiums or interest rate payments due to the variable of the rates. See Note 8 for additional
details.

2 Amount represents capital expenditures DRH is obligated to pay for restaurants under development in addition to

noncancelable operating leases for these restaurants.

Mandatory Upgrades

In fiscal year 2014, we completed two mandatory remodels of existing DRH-owned BWW restaurant, which was funded
with cash from operations. We have four mandatory remodels for DRH-owned BWW locations in 2015, which will also be
funded with cash from operations.

Discretionary Upgrades and Relocations

In fiscal year 2014, the Company invested additional capital to provide minor upgrades to a number of its existing locations,
all of which were funded by cash from operations. These improvements primarily consisted of new carpentry, audio/visual
equipment upgrades, patio upgrades, and point-of-sale system upgrades. In fiscal year 2014, we relocated two DRH-owned
BWW locations in lieu of remodels; the relocations occurred in second quarter 2014. The decision to relocate is typically
driven by timing of our current lease agreements and the availability of real estate that we deem to be a better long-term
investment. Relocations are funded by a combination of cash from operations and borrowing from our credit facility.

OFF-BALANCE SHEET ARRANGEMENTS

The Company assumed, from a related entity, an ADA in which the Company was to open 23 BWW restaurants within its
designated "development territory”. On December 12, 2008, this agreement was amended, adding nine additional restaurants
and extending the date of fulfillment to March 1, 2017. Failure to develop restaurants in accordance with the schedule detailed
in the agreement could lead to potential penalties of up to $50,000 for each undeveloped restaurant, payment of the initial
franchise fees for each undeveloped restaurant, and loss of rights to development territory. As of December 28, 2014, 24 of
the required 32 ADA restaurants had been opened for business. We remain on track to fulfill our obligation under the amended
ADA, and we expect to operate a total of 52 BWW by the end of 2017, exclusive of potential acquisitions of additional BWW
restaurants.

Impact of Inflation

Our profitability is dependent, among other things, on our ability to anticipate and react to changes in the costs of key
operating resources, including food and other raw materials, labor, energy, and other supplies and services. Substantial
increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to
our restaurant guests. The impact of inflation on food, labor, energy, and occupancy costs can significantly affect the
profitability of our restaurant operations.

All of our restaurant staff members are paid hourly rates related to the federal minimum wage. Certain operating costs, such
as taxes, insurance, and other outside services continue to increase with the general level of inflation or higher and may also
be subject to other cost and supply fluctuations outside of our control.

While we have been able to partially offset inflation and other changes in the costs of key operating resources by gradually
increasing prices for our menu items, more efficient purchasing practices, productivity improvements, and greater economies
of scale, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive
conditions could limit our menu pricing flexibility. In addition, macroeconomic conditions could make additional menu price
increases imprudent. There can be no assurance that all future cost increases can be offset by increased menu prices or that
increased menu prices will be fully absorbed by our restaurant guests without any resulting changes in their visit frequencies
or purchasing patterns. There can be no assurance that we will continue to generate increases in comparable restaurant sales
in amounts sufficient to offset inflationary or other cost pressures.

Critical Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and
transactions have been eliminated upon consolidation.

We consolidate all variable interest entities (“VIE”) where we are the primary beneficiary. For VIEs, we assess whether we
are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIEs. The primary beneficiary
of a VIE is the party that has the power to direct the activities that most significantly impact the performance of the entity
and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.

Property and Equipment

Property and equipment are recorded at cost. Buildings are depreciated using the straight-line method over the estimated
useful life, which is typically 39 years. 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, with consideration of renewal options if renewals are reasonably assured because failure to
renew would result in an economic penalty, or the estimated useful lives of the assets, which is typically 5 - 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.

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- 10 – 20 years, Trademarks- 15 years, Non-
compete- 3 years, Favorable unfavorable and unfavorable leases- over the term of the lease and Loan fees- over the term of
the loan.

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets

The Company reviews property and equipment, along with other long-lived assets subject to amortization, for impairment
whenever events or changes in circumstances indicate that a potential impairment has occurred. No impairment loss was
recognized for years ended December 28, 2014, December 29, 2013 and December 30, 2012.

Liquor licenses, also a component of intangible assets, are deemed to have an indefinite life and, accordingly, are not
amortized. Management reviews liquor license assets on an annual basis (at year-end) to determine whether carrying values
have been impaired. 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 carrying amount exceeds
the fair value, an impairment loss is recorded for the difference. If the fair value of the asset is less than the carrying amount,
an impairment is recorded. No impairments were recognized in fiscal 2014, 2013 or 2012.

We also 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 buildings, 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. No impairments
were recognized in fiscal 2014, 2013 or 2012. We are currently monitoring several restaurants in regards to the valuation of
long-lived assets and have developed plans to improve operating results. Based on our current estimates of the future
operating results of these restaurants, we believe that the assets at these restaurants are not impaired. As we periodically refine
our estimated future operating results, changes in our estimates and assumptions may cause us to realize impairment charges
in the future that could be material.

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 December 28,
2014 and December 29, 2013, we had goodwill of $11.0 million and $8.6 million that was assigned to our Buffalo Wild
Wings reporting unit.

The impairment analysis, if necessary, consists of a two-step process. The first step is to compare the fair value of the reporting
unit to its carrying value, including goodwill. We estimate fair value using market information (market approach) and
discounted cash flow projections (income approach). The income approach uses the reporting unit’s projection of estimated
operating results and cash flows that is discounted using a weighted-average cost of capital that reflects market conditions.
The projection uses management’s best estimates of projected revenue, costs and cash expenditures, including an estimate of
new restaurant openings and related capital expenditures. Other significant estimates also include terminal growth rates and
working capital requirements. We supplement our estimate of fair value under the income approach by using a market
approach which estimates fair value by applying multiples to the reporting unit’s projected operating performance. The
multiples are derived from comparable publicly traded companies with similar characteristics to the reporting unit. If the fair
value of the reporting unit is less than its carrying value, the second step of the impairment analysis must be performed in
order to determine the amount of impairment loss, if any. The second step compares the implied fair value of goodwill with

the carrying amount of that goodwill. If the carrying amount of the goodwill exceeds its implied fair value, an impairment
charge is recognized in an amount equal to that excess. All goodwill was considered recoverable as of December 28, 2014
and December 29, 2013 based on our quantitative analysis.

Investments

The Company’s investment securities are classified as available-for-sale. Investments classified as available-for-sale are
available to be sold in the future in response to the Company’s liquidity needs, changes in market interest rates, tax strategies,
and asset-liability management strategies, among other reasons. Available-for-sale securities are reported at fair value, with
unrealized gains and losses, net of taxes, reported in the accumulated other comprehensive income (loss) component of
stockholders’ equity, and accordingly, have no effect on net income. Realized gains or losses on sale of investments are
determined on the basis of specific costs of the investments. Dividend income is recognized when declared and interest
income is recognized when earned. Discount or premium on debt securities purchased at other than par value are amortized
using the effective yield method. See Note 4 for details.

Interest Rate Swap Agreements

The Company utilizes interest rate swap agreements with RBS 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 balance sheet. 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 statement of operations when the hedged item
affects earnings. The ineffective portion of the change in fair value of a hedge is 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
Sheet in other long-term assets or other liabilities depending on the fair value of the swaps. See Note 8 and Note 15 for
additional information on the interest rate swap agreements.

Stock 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Debt Securities

We are exposed to market risk related to our debt securities. To manage our exposure, we have invested our excess cash in
highly liquid short-term investments with maturities of less than one year. The investments are not held for trading or other
speculative purposes. See Notes 1, 4, and 15 of our audited consolidated financial statements for additional information.

Interest Rate Risk

As a result of our normal borrowing activities, our operating results are exposed to fluctuations in interest rates. DRH has
short-term and long-term debt with both fixed and variable interest rates. The short-term debt comprises the current portion
of long-term debt maturing within twelve months from the balance sheet date. Long-term debt includes secured notes payable,
one line of credit and a revolving line of credit which is used to finance working capital requirements. To manage our
exposure, we have entered into interest rate swap agreements. The derivative instruments are not held for trading or other
speculative purposes.

As of December 28, 2014, DRH had $61.8 million of variable-rate debt with a weighted average interest rate of 2.7%, which
approximates fair value. Interest based on the debt agreement is based on one-month LIBOR plus an applicable margin,
which ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of the agreement.
DRH currently estimates that a 100 basis point fluctuation in LIBOR would result in an approximate $0.6 million fluctuation
in pretax income. See Notes 1, 8 and 15 of our audited consolidated financial statements for additional information.

Inflation

The primary inflationary factors affecting our operations are food, labor, and restaurant operating costs. Substantial increases
in these costs could impact operating results to the extent that such increases cannot be passed along through higher menu
prices. A large number of our restaurant personnel are paid at rates based on the applicable federal and state minimum wages,
and increases in the minimum wage rates and tip-credit wage rates could directly affect our labor costs. Many of our leases
require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary
increases.

Commodity Price Risk

Many of the food products purchased by us are affected by weather, production, availability, and other factors outside our
control. We believe almost all of our food and supplies are available from several sources, which helps to control food product
risks. Our purchasing department for Bagger Dave’s negotiates directly with our independent suppliers for our supply of food
and paper products. As negotiated by BWLD, our DRH-owned BWW restaurants have a distribution contract with a BWLD
selected vendor for our supply of food, paper, and non-food products. We have minimum purchase requirements with some
of our vendors, but the terms of the contracts and our historical use of the products are such that we believe these minimum
purchase requirements do not create a material market risk. One of the primary food products used by our BWW restaurants
is chicken wings. We work to counteract the effect of the volatility of chicken wing prices, which can significantly change
our cost of sales and cash flow, with the introduction of new menu items, effective marketing promotions, focused efforts on
food costs and waste, and menu price increases. We also explore purchasing strategies to reduce the severity of cost increases
and fluctuations. For the periods ended December 28, 2014 and December 29, 2013 chicken wings accounted for
approximately 29.7% and 33.6%, with an average price per pound of $1.53 and $1.76, respectively.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements, Notes to Consolidated Financial Statements, and the Report of Independent
Registered Accounting Firm are included at pages 36 through 64 of this Annual Report and are incorporated herein by
reference.

DIVERSIFIED RESTAURANT HOLDINGS, INC.

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...........................................................

REPORT BY DIVERSIFIED RESTAURANT HOLDINGS, INC.'S MANAGEMENT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING ...............................................................................................................................

CONSOLIDATED FINANCIAL STATEMENTS:

CONSOLIDATED BALANCE SHEETS ..................................................................................................................

CONSOLIDATED STATEMENTS OF OPERATIONS ..........................................................................................

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ....................................................

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ...................................................................

CONSOLIDATED STATEMENTS OF CASH FLOWS ..........................................................................................

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................................................................

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Diversified Restaurant Holdings, Inc. and Subsidiaries
Southfield, Michigan

We have audited the accompanying consolidated balance sheets of Diversified Restaurant Holdings, Inc. and Subsidiaries as
of December 28, 2014 and December 29, 2013 and the related consolidated statements of operations, comprehensive income
(loss), stockholders’ equity, and cash flows for each of the three fiscal years in the period ended December 28, 2014. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Diversified Restaurant Holdings, Inc. and Subsidiaries at December 28, 2014 and December 29, 2013, and the
results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 2014, in
conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Diversified Restaurant Holdings, Inc. and Subsidiaries’ internal control over financial reporting as of December 28, 2014,
based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 13, 2015 expressed an adverse opinion
thereon.

/s/ BDO USA, LLP

Troy, Michigan
March 13, 2015

March 13, 2015

REPORT BY DIVERSIFIED RESTAURANT HOLDINGS, INC.'S MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an effective system of internal control over financial reporting
that is designed to produce reliable financial statements presented in conformity with generally accepted accounting
principles. There are inherent limitations in the effectiveness of any system of internal control. Accordingly, even an effective
system of internal control can provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Company's system of internal control over financial reporting that is designed to produce reliable
financial statements presented in conformity with generally accepted accounting principles as of December 28, 2014. This
assessment was based on criteria for effective internal control over financial reporting described in Internal Control —
Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, and the material weakness described below, management believes that, as of
December 28, 2014, our system of internal control over financial reporting was not effective based on those criteria.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not
be prevented or detected on a timely basis. Our management has determined that our internal control related to financial
reporting was not effective to ensure the effective design of internal control and that an effective evaluation and review of
complex accounting matters had occurred prior to presentation to our external auditors. Specifically, our initial evaluation of
long-lived assets for potential impairment was not sufficient under generally accepted accounting principles. Further, our
evaluation of the accounting for modifications made under our borrowing arrangements reached an incorrect conclusion and
we did not adequately evaluate the realization of our deferred tax assets. While we do not believe that this affected the
accuracy of our financial statements included in the Annual Report on Form 10-K, this control deficiency could result in a
material misstatement of the financial statements that would not be prevented or detected. Accordingly, our management,
after discussion with our registered independent accounting firm, has concluded that this control deficiency constitutes a
material weakness. This material weakness was identified in connection with our assessment of the effectiveness of internal
control over financial reporting as of December 28, 2014, and has not yet been remediated. However, our management team
has reviewed and discussed the identified material weakness with the Audit Committee and is in the process of developing
and implementing an action plan to resolve it.

The Company’s independent auditors have issued an audit report on the effectiveness of the Company’s internal control over
financial reporting as found on page 65.

Diversified Restaurant Holdings, Inc.

/s/ T. Michael Ansley
T. Michael Ansley

Chairman of the Board, President, Chief Executive
Officer, and Principal Executive Officer

/s/ David G. Burke
David G. Burke

Chief Financial Officer, Treasurer, Principal Financial
Officer, and Principal Accounting Officer

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 28 December 29

2014

2013

ASSETS

Current assets
Cash and cash equivalents ............................................................................................... $
Investments ......................................................................................................................
Accounts receivable .........................................................................................................
Inventory ..........................................................................................................................
Prepaid assets ...................................................................................................................
Total current assets ........................................................................................................

18,688,281 $
2,917,232
1,417,510
1,335,774
397,715
24,756,512

9,562,473
8,561,598
1,248,940
1,017,626
555,144
20,945,781

2,960,640
Deferred income taxes .....................................................................................................
71,508,950
Property and equipment, net ............................................................................................
2,916,498
Intangible assets, net .......................................................................................................
10,998,630
Goodwill ...........................................................................................................................
Other long-term assets ......................................................................................................
305,804
Total assets ...................................................................................................................... $ 113,447,034 $

1,162,761
58,576,734
2,948,013
8,578,776
121,668
92,333,733

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable ............................................................................................................. $
Accrued compensation .....................................................................................................
Other accrued liabilities ...................................................................................................
Current portion of long-term debt ...................................................................................
Current portion of deferred rent .......................................................................................
Total current liabilities ..................................................................................................

Deferred rent, less current portion ....................................................................................
Unfavorable operating leases ...........................................................................................
Other liabilities .................................................................................................................
Long-term debt, less current portion ................................................................................
Total liabilities ................................................................................................................

7,043,143 $
2,786,830
1,357,510
8,155,903
377,812
19,721,198

3,051,445
693,497
3,212,376
53,612,496
80,291,012

4,416,092
2,060,082
809,104
8,225,732
306,371
15,817,381

3,420,574
759,065
327,561
38,047,589
58,372,170

Commitments and contingencies (Notes 11 and 12)

Stockholders' equity

Common stock - $0.0001 par value; 100,000,000 shares authorized; 26,149,824 and

26,049,578, respectively, issued and outstanding ....................................................
Additional paid-in capital .............................................................................................
Accumulated other comprehensive loss .......................................................................
Accumulated deficit ......................................................................................................
Total stockholders' equity .............................................................................................

2,582
35,668,001
(175,156 )
(2,339,405 )
33,156,022

2,580
35,275,255
(245,364)
(1,070,908)
33,961,563

Total liabilities and stockholders' equity ...................................................................... $ 113,447,034 $

92,333,733

See accompanying notes to consolidated financial statements.

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Twelve Months Ended
December 28 December 29 December 30
2013

2012

2014

Revenue

$ 128,413,448 $ 108,886,139 $

77,447,208

Operating expenses
Restaurant operating costs (exclusive of depreciation and

amortization shown separately below):
Food, beverage, and packaging ......................................................
Compensation costs ........................................................................
Occupancy ......................................................................................
Other operating costs ......................................................................
General and administrative expenses ................................................
Pre-opening costs ...............................................................................
Depreciation and amortization ...........................................................
Loss on disposal of property and equipment ......................................
Total operating expenses .................................................................

37,058,821
33,337,000
7,205,420
27,214,208
8,786,520
3,473,664
10,956,951
1,023,144
129,055,728

32,719,254
28,096,721
6,381,052
21,675,473
7,270,597
3,230,122
7,974,481
98,162
107,445,862

24,117,399
19,448,210
4,289,966
15,008,171
6,585,908
1,792,168
4,587,310
36,833
75,865,965

Operating profit (loss) ......................................................................

(642,280)

1,440,277

1,581,243

Change in fair value of derivative instruments ...................................
Interest expense ..................................................................................
Other income (expense), net ...............................................................

-
(2,274,041)
(58,912)

-
(1,718,711 )
151,292

(43,361)
(1,282,991)
20,081

Income (loss) before income taxes ...................................................

(2,975,233)

(127,142 )

274,972

Income tax benefit ..............................................................................

(1,706,736)

(261,450 )

(167)

Net income (loss) ...............................................................................

(1,268,497)

134,308

275,139

Less: (Income) attributable to noncontrolling interest .......................

(95,040)

Net income (loss) attributable to DRH ........................................... $

(1,268,497) $

134,308 $

180,099

Basic earnings per share ..................................................................... $
Fully diluted earnings per share ........................................................ $

(0.05) $
(0.05) $

0.01 $
0.01 $

0.01
0.01

Weighted average number of common shares outstanding

Basic ...............................................................................................
Diluted ............................................................................................

26,092,919
26,092,919

23,937,188
24,058,072

18,949,556
19,091,849

See accompanying notes to consolidated financial statements.

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Twelve Months Ended
December 28 December 29 December 30
2013

2012

2014

Net income (loss) ............................................................................... $

(1,268,497) $

134,308 $

275,139

Other comprehensive income (loss)

Unrealized changes in fair value of interest rate swaps, net of tax

of $23,097, $35,084 and $146,457. .............................................

44,836

68,106

(284,294)

Unrealized changes in fair value of investments, net of tax of

$13,071, $15,030 and $0. ............................................................

25,372

(29,176)

Total other comprehensive income (loss) .......................................

70,208

38,930

(284,294)

Comprehensive income (loss) ..........................................................

(1,198,289)

173,238

(9,155)

Less: Comprehensive (income) attributable to noncontrolling

interest .............................................................................................

(95,040)

Comprehensive income (loss) attributable to DRH....................... $

(1,198,289) $

173,238 $

(104,195)

See accompanying notes to consolidated financial statements.

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common Stock
Shares

Additional
Paid-in
Amount Capital

Accumulated Retained
Earnings

Other

Total

Comprehensive (Accumulated Noncontrolling Stockholders'

Balances - December 25, 2011 .................. 18,936,400 $

1,888 $ 2,771,077 $

Issuance of restricted shares ........................

28,800

Forfeitures of restricted shares ....................

(13,500 )

Share-based compensation ..........................

Distributions from noncontrolling interest ..

Elimination of noncontrolling interest ........

Cash paid in excess of book value of

noncontrolling interest, net of taxes .........

Other comprehensive loss ...........................

Net income ..................................................

220,449

Loss

Deficit)
(1,253,831) $

Interest

Equity

385,485 $

1,904,619

220,449

(40,000)

440,525

(440,525)

- $

(572,009)

(284,294)

(572,009)

(284,294)

180,099

95,040

275,139

Balances - December 30, 2012 .................. 18,951,700 $

1,888 $ 2,991,526 $

(284,294) $

(1,205,216) $

- $

1,503,904

Issuance of restricted shares ........................

145,575

Forfeitures of restricted shares ....................

(57,108 )

Sale of common stock from follow-on

public offering, net of fees and expenses . 6,900,000

690 31,906,990

Stock options exercised ...............................

104,638

Employee stock purchase plan ....................

4,773

Share-based compensation ..........................

Other comprehensive income .....................

Net income ...................................................

74,997

23,452

278,290

38,930

134,308

31,907,680

-
-

74,999

23,452

278,290

38,930

134,308

Balances - December 29, 2013 .................. 26,049,578 $

2,580 $ 35,275,255 $

(245,364) $

(1,070,908) $

- $

33,961,563

Issuance of restricted shares ........................

91,966

Forfeitures of restricted shares ....................

(2,735 )

Employee stock purchase plan ....................

11,015

Share-based compensation ..........................

Other comprehensive income .....................

Net loss ........................................................

53,936

338,810

70,208

53,938

338,810

70,208

(1,268,497)

Balances - December 28, 2014 .................. 26,149,824 $

2,582 $ 35,668,001 $

(175,156) $

(2,339,405) $

- $

33,156,022

See accompanying notes to consolidated financial statements.

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Twelve Months Ended
December 28 December 29 December 30
2013

2014

2012

Cash flows from operating activities

Net income (loss) ............................................................................ $
Adjustments to reconcile net income (loss) to net cash provided

by operating activities
Depreciation and amortization ....................................................
Loan fees and other amortization ................................................
Realized loss on sale of investments ...........................................
Loss on disposal of property and equipment ...............................
Share-based compensation ..........................................................
Change in fair value of derivative instruments ...........................
Deferred income taxes ................................................................
Changes in operating assets and liabilities that provided

(used) cash

Accounts receivable .............................................................
Inventory ..............................................................................
Prepaid assets .......................................................................
Intangible assets ...................................................................
Other long-term assets .........................................................
Accounts payable .................................................................
Accrued liabilities ................................................................
Deferred rent ........................................................................
Net cash provided by operating activities ......................................

(1,268,497) $

134,308 $

275,139

10,956,951
331,650
33,406
1,023,144
338,810
-
(1,834,048)

(168,570)
(264,148)
157,429
(123,345)
(184,136)
1,470,923
1,123,372
(297,688)
11,295,253

7,974,481
76,407
-
98,162
278,290
-
(336,223 )

(1,000,537 )
(208,542 )
(107,715 )
(660,966 )
(3,523 )
(497,999 )
208,742
1,226,086
7,180,971

4,587,310
141,329
-
36,833
220,449
43,361
(133,287)

(227,906)
(141,547)
(210,434)
(1,044,899)
(43,756)
2,269,555
1,250,112
570,362
7,592,621

Cash flows from investing activities

Purchases of investments ................................................................
Proceeds from sale of investments ..................................................
Purchases of property and equipment .............................................
Acquisition of business, net of cash acquired .................................
Proceeds from sale leaseback transaction .......................................
Cash paid in excess of book value on noncontolling interest .........
Net cash used in investing activities ................................................

(7,469,555)
13,111,935
(38,988,376)
(3,202,750)
19,079,401
-
(17,469,345)

(13,883,671 )
5,278,048
(25,345,370 )
-
-
-
(33,950,993 )

-
-
(15,675,329)
(14,686,575)
-
(866,681)
(31,228,585)

Cash flows from financing activities

Proceeds from issuance of long-term debt ......................................
Repayments of long-term debt ........................................................
Payment of loan fees .......................................................................
Proceeds from employee stock purchase plan ................................
Proceeds from sale of common stock, net of underwriter fees .......
Distributions from non-controlling interest ....................................
Net cash provided by financing activities .......................................

84,008,979
(68,513,901)
(249,116)
53,938
-
-
15,299,900

61,743,866
(60,117,830 )
-
23,452
31,982,679
-
33,632,167

63,521,824
(38,683,029)
-
-
-
(40,000)
24,798,795

Net increase in cash and cash equivalents ......................................

9,125,808

6,862,145

1,162,831

Cash and cash equivalents, beginning of period ................................

9,562,473

2,700,328

1,537,497

Cash and cash equivalents, end of period ...................................... $

18,688,281 $

9,562,473 $

2,700,328

See accompanying notes to consolidated financial statements.

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Diversified Restaurant Holdings, Inc. (“DRH”) is a fast-growing restaurant company operating two complementary
concepts: Bagger Dave’s Burger Tavern ® (“Bagger Dave’s”) and Buffalo Wild Wings ® Grill & Bar (“BWW”). As the
creator, developer, and operator of Bagger Dave’s and as one of the largest franchisees of BWW, we provide a unique guest
experience in a casual and inviting environment. We were incorporated in 2006 and are headquartered in the Detroit
metropolitan area. As of December 28, 2014 we had 66 locations in Florida, Illinois, Indiana, and Michigan.

In 2008, DRH became publicly owned completing a self-underwritten initial public offering for $735,000 and 140,000 shares.
We subsequently completed an underwritten, follow-on offering on April 23, 2013 of 6.9 million shares with net proceeds of
$31.9 million.

DRH is also one of the largest BWW franchisees and currently operates 42 DRH-owned BWW restaurants (19 in Michigan,
14 in Florida, four in Illinois, and five in Indiana), including the nation’s largest BWW, based on square footage, in downtown
Detroit, Michigan. We remain on track to fulfill our area development agreement (“ADA”) with BWLD and expect to operate
52 DRH-owned BWW restaurants by the end of 2017, exclusive of potential additional BWW restaurant acquisitions. In
2014 DRH was awarded the Franchisee of the Year and our COO received the Founder’s Award by Buffalo Wild Wings
International (“BWLD”).

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.

REAL ESTATE was formed on March 18, 2013 and serves as the holding company for the real estate properties owned by
DRH. REAL ESTATE’s portfolio currently includes three properties, two Bagger Dave’s restaurants, which will be sold as
part of the sale leaseback transaction as described in Note 3, and one DRH-owned BWW restaurants. The restaurants at these
locations are all owned and operated by DRH.

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 include the accounts of the Company. All significant intercompany accounts and
transactions have been eliminated upon consolidation.

Fiscal Year

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. Fiscal year 2014 ended
on December 28, 2014, comprised 52 weeks, fiscal year 2013 ended on December 29, 2013, comprised 52 weeks, and fiscal
year 2012 ended December 30, 2012, comprised 53 weeks.

Segment Reporting

The Company has two operating segments, Bagger Dave’s and BWW. The brands operate within the ultra-casual, full-service
dining industry, providing similar products to similar customers. The brands also possess similar economic characteristics,
resulting in similar long-term expected financial performance. Sales from external customers are derived principally from
food and beverage sales. We do not rely on any major customers as a source of sales. We believe we meet the criteria for
aggregating our operating segments into a single reporting segment.

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.

Investments

Accounts Receivable

Accounts receivable primarily consist of contractually determined receivables for leasehold improvements and 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 or deferred rent as applicable. There was no allowance
for doubtful accounts necessary at December 28, 2014 and December 29, 2013.

Gift Cards

Buffalo Wild Wings
The Company records gift cards under a BWLD central-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 located.

Bagger Dave’s
The Company records Bagger Dave's gift card sales as a gift card liability when sold. When redeemed, the gift card liability
account is offset by recording the transaction as revenue. Michigan law states that gift cards cannot expire and any post-sale
fees cannot be assessed until five years after the date of gift card purchase by the consumer. There is no breakage attributable
to Bagger Dave's restaurants for the Company to record as of December 28, 2014 and December 29, 2013.

The Company's net gift card asset/liability was a liability of $10,706 and an asset of $58,793 as of December 28, 2014 and
December 29, 2013, 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 used 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 covered by the unexpired premium. Other assets consist primarily of security deposits on our operating leases.

Property and Equipment

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- 10 – 20 years, Trademarks- 15 years, Non-
compete- 3 years, Favorable unfavorable and unfavorable leases- over the term of the lease and Loan fees- over the term of
the loan.

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets

Goodwill

multiples are derived from comparable publicly traded companies with similar characteristics to the reporting unit. If the fair
value of the reporting unit is less than its carrying value, the second step of the impairment analysis must be performed in
order to determine the amount of impairment loss, if any. The second step compares the implied fair value of goodwill with
the carrying amount of that goodwill. If the carrying amount of the goodwill exceeds its implied fair value, an impairment
charge is recognized in an amount equal to that excess. All goodwill was considered recoverable as of December 28, 2014
and December 29, 2013 based on our quantitative analysis.

Deferred Rent

Certain operating leases provide for minimum annual payments that increase over the life of the lease. Typically, leases have
an initial lease term of between five and 20 years and contain renewal options under which we may extend the 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, without consideration of renewal options.
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 on the sale leaseback transaction described in Note 3 of the Consolidated Financial Statements, are recognized
into income over the life of the related operating lease agreements.

Revenue Recognition

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

Advertising

Advertising expenses associated with contributions to the BWLD advertising fund (3.0% of net sales globally and 0.5% of
net sales for certain cities) are expensed as contributed and all other advertising expenses are expensed as incurred.
Advertising expenses were $3.5 million, $2.8 million and $3.3 million for the years ended December 28, 2014, December
29, 2013 and December 30, 2012, respectively, and are included in general and administrative expenses in the Consolidated
Statements of Operations.

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. Beginning in late 2012, the Company reclassed 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 were $3.5 million, $3.2 million, and $1.8 million for the years ended December 28, 2014, December 29, 2013
and December 30, 2012, respectively. Excess labor cost incurred after restaurant opening and included in pre-opening cost
were approximately $516,000, $1.1 million and $315,000 for the years ended December 28, 2014, December 29, 2013, and
December 30, 2012, 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 FASB ASC 740, Income Taxes, (“ASC 740”) 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 28, 2014 and December 29, 2013.

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 nonforfeitable 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.

Stock Based Compensation

Concentration Risks

Approximately 79.1%, 80.9%, and 76.8% of the Company's revenues for the years ended December 28, 2014, December 29,
2013 and December 30, 2012, 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 RBS Citizens, N.A. (“RBS”) 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 balance sheet. 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 statement
of operations when the hedged item affects earnings. The ineffective portion of the change in fair value of a hedge is
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.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU
2014-09"), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-
09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the
consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process
to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15,
2016, and interim periods therein. We are currently evaluating the impact of our pending adoption of ASU 2014-09, although
based on the nature of our business we do not expect the standard will have a significant impact on our consolidated financial
statements.

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

2. ACQUISITIONS

Indiana and Illinois – September 25, 2012

On September 25, 2012, the Company completed the acquisition of substantially all of the assets of Crown Wings, Inc.,
Brewsters, Inc., Valpo Wings, Inc., Buffaloville Wings, Inc., and Hammond Wings, Inc., each an Indiana corporation, and
Homewood Wings, Inc., Cal City Wings, Inc., Lansing Wings, Inc., and Lincoln Park Wings, Inc., each an Illinois corporation
(collectively, the “Indiana and Illinois Entities”). The purchase price for the acquisition was $14.7 million. The acquired
assets consist of four BWW restaurants operating in Indiana and four operating in Illinois along with the right to develop a
fifth BWW restaurant in Indiana.

The following table summarizes the estimated fair values of net assets acquired and liabilities assumed:

Working capital ............................................................................................................................................. $
Property and equipment ................................................................................................................................
Franchise fees ................................................................................................................................................
Non-compete .................................................................................................................................................
Liquor licenses ..............................................................................................................................................
Favorable operating leases ............................................................................................................................
Unfavorable operating leases ........................................................................................................................
Goodwill ........................................................................................................................................................
Net cash paid for acquisition ...................................................................................................................... $

109,459
5,664,140
254,000
74,100
656,000
239,000
(875,000)
8,578,776
14,700,475

The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill, all of which is
expected to be deductible for tax purposes. The results of operations of these locations are included in our Consolidated
Statements of Operations from the date of acquisition.

The fair value of property and equipment acquired was determined primarily using the cost approach, which is based on the
current cost to recreate or duplicate the assets less an appropriate allowance for depreciation from all causes; physical,
functional, and economic. We estimated replacement cost new by using the indirect approach. We applied equipment-specific
cost indices published by Bureau of Labor Statistics – Producer Price Index to the historical cost of the assets to estimate
replacement cost new. To determine the depreciation allowance, we estimated the expected normal useful life of the asset
and its respective age, also considering the current physical condition, current, and future utilization of the asset. Based on
this information, we developed a retirement relationship to age for the asset, determining physical depreciation derived from
straight-line depreciation. We then adjusted the replacement cost new, using this relationship to determine replacement cost
new less depreciation. Although we considered accounting for functional obsolescence of the assets, we did not apply a
functional obsolescence deduction because the assets are functioning as originally designed for use.

The fair value of the liquor licenses acquired was determined by obtaining current market values for liquor licenses in the
county in which our acquired restaurants are located.

The fair value of favorable and unfavorable operating leases was determined by calculating the present value of the
differences between contracted rent (on a cost per square foot basis) to market rent for comparable properties over the term
of the related leases. The Company used a 12.0% discount rate in the present value calculation and the remaining lease terms
ranged from seven to 16 years. These favorable and unfavorable operating leases are amortized to rent expense over their
respective lease terms.

The following table summarizes the unaudited pro forma financial information as if the acquisition had occurred at the
beginning of the periods presented:

December 30
2012

Revenue .........................................................................................................................................................
....................................................................................................................................................................... $

90,485,351

Net income (loss) attributable to DRH ..........................................................................................................

(248,695)

Basic earnings (loss) per share ......................................................................................................................

Diluted earnings (loss) per share ...................................................................................................................

(0.01)

The Indiana and Illinois Entities generated $5.0 million in revenue and reported a net loss of $164,281 for the time period of
September 25, 2012 to December 30, 2012.

The Company believes this acquisition expands the scope of our operations, adds a number of new markets to our existing
footprint and strategically positions DRH for future expansion throughout the Midwest. Long-term, we look to leverage this
acquisition by expanding our Bagger Dave's concept within the same footprint, led by the opening of our first restaurant in
Indiana.

Florida – June 30, 2014

On June 30, 2014, the Company completed the acquisition of substantially all of the assets of Screamin’ Hot Florida, LLC
and Screamin’ Hot Trinity, LLC, each a Florida limited liability company. The assets consist of three BWW restaurants in
Clearwater, Port Richey and Oldsmar, Florida (collectively, the “Florida 2014 Acquisition”). The purchase price was $3.2
million in cash, subject to working capital adjustment, and one-half of the transfer fees imposed by BWLD under its franchise
agreements for Florida 2014 Acquisition. After the acquisition, the Company owns the entire Tampa, FL BWW market,
giving DRH control of the local Advertising Co-Op. This ownership provides DRH a unique opportunity to gain local market
scale, in addition to providing greater geographic diversity to the Company’s restaurant portfolio.

The following table summarizes the estimated fair values of net assets acquired and liabilities assumed:

57,600
656,146
72,750
2,419,854
3,206,350

The excess of the purchase price over the aggregate fair value of assets acquired is allocated to goodwill. Goodwill will be
deductible for tax purposes. The results of operations of these locations are included in our Consolidated Statements of
Operations from the date of acquisition. The Company found it impracticable to report the supplemental pro forma
information for the Florida 2014 Acquisition due to the lack of available information.

The results of operations from the acquisition are included in the Company's results beginning June 30, 2014. The actual
amounts of revenue and operating loss are included in the accompanying Consolidated Statement of Operations for the year
ended December 28, 2014 and are, $3.1 million and $135,796, respectively.

Idaho, Wyoming and Nevada – Potential Q1 2015

On February 17, 2015, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) to acquire
substantially all of the assets of Screamin' Hot Concepts, LLC, Screamin' Hot Nampa, LLC, Screamin’ Hot Twin Falls, LLC,
each an Idaho limited liability company, and Screamin’ Hot Reno, LLC, a Nevada limited liability company. The assets
consist primarily of nine existing BWW restaurants; including five in Idaho, two in Wyoming and two in Nevada. The assets
also include three BWW Wings restaurants that are currently under development; two of which will be located in Idaho and
one of which will be located in Wyoming. As consideration for the acquisition of the assets, the Company will pay $34.6

million in cash, subject to adjustment for closing inventory amounts, one-half of the transfer fees imposed by BWLD under
its franchise agreements for these restaurants and one-half of any liquor license transfer fees. The Company will also
reimburse the Sellers for reasonable third-party costs incurred in development of the restaurants that remain under
construction. The Purchase Agreement is subject to customary pre-closing conditions, including a financing condition in
favor of the Company. BWLD has a right of first refusal, exercisable for a period of 45 days, to acquire the restaurants on
the same terms proposed in the Purchase Agreement.

3. SIGNIFICANT BUSINESS TRANSACTIONS

On September 25, 2012, the Company acquired 100.0% of the membership interests in the Ansley Group, LLC for
approximately $2.5 million. The purchase was approved by the Company's disinterested directors who determined that the
purchase price was fair to the Company based upon an independent appraisal. As a result, the Company acquired full
ownership rights in the Clinton Township BWW restaurant. The Ansley Group, LLC was owned by T. Michael Ansley and
Thomas D. Ansley. T. Michael Ansley is the Chairman of the Board of Directors, President, and CEO and a principal
shareholder of the Company. This allowed us to unwind the Ansley Group VIE accounting treatment and eliminate the
related non-controlling interest in the fourth quarter of 2012.

On April 23, 2013, the Company completed an underwritten, follow-on equity offering of 6.9 million shares of common
stock at a price of $5.00 per share to the public. After deducting underwriting discounts, commissions, and other offering
expenses, the net proceeds to DRH from the offering were $31.9 million. Refer to our Form S-1/A filed on April 15, 2013
for additional information.

The Company invested a portion of the proceeds from the follow-on offering in highly liquid short-term investments with
maturities of less than one year. These are temporary investments while the Company looks to invest them in growth
opportunities for new restaurant openings. These investments are not held for trading or other speculative purposes and are
classified as available for sale. We invested with a strategy focused on principal preservation. Changes in interest rates affect
the investment income we earn on our marketable securities and, therefore, impact our cash flows and results of operations.
See Note 4 for additional information.

On October 6, 2014, the Company entered into a sale leaseback agreement for $24.6 million with a third-party Real Estate
Investment Trust (“REIT”). The arrangement includes the sale of 12 properties, six Bagger Dave’s locations and six BWW
locations. In Q4 2014, we closed on ten of the 12 properties, with total proceeds of $19.1 million. We expect to close the sale
of the remaining properties in Q2 2015, with proceeds of $5.5 million. In pursuant to the terms of each sale-leaseback
transaction, we transferred title of the real property to the purchaser after final inspection and, in turn, entered into separate
leases with the purchaser having a 15-year basic operating lease term plus four separate five-year renewal options. In
connection with the closing of the sale-leaseback transactions in Q4 2014, the Company recorded losses of approximately
$0.5 million, which is included in loss on disposal of property and equipment the Consolidated Statement of Operations. The
Company also recorded deferred gains of $2.3 million for the properties sold at a gain. At December 28, 2014, $0.2 million
of the deferred gain was recorded in other accrued liabilities and $2.1 million of the deferred gain was recorded in other
liabilities on the Consolidated Balance Sheet. The gains will be recognized into income as an offset to rent expense over the
life of the related lease agreements. See Notes 5, 8 and 11 for additional information.

4. INVESTMENTS

Investments consist of available-for-sale securities that are carried at fair value. Available-for-sale securities are classified as
current assets based upon our intent and ability to use any and all of the securities as necessary to satisfy the operational
requirements of our business. Based on the call date of the investments, all securities have maturities of one year or less.
Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary.

The amortized cost, gross unrealized holding gains, gross unrealized holding loss, and fair value of available-for-sale
securities by type are as follows:

Debt securities:
Obligations of states/municipals .................................................. $ 1,190,261 $
Corporate securities ...................................................................... 1,732,734
Total debt securities ................................................................... $ 2,922,995 $

- $
-
- $

(4,278) $ 1,185,983
(1,485) 1,731,249
(5,763) $ 2,917,232

December 28, 2014

Amortized
Cost

Unrealized
Gains

Unrealized
Loss

Estimated
Fair Value

December 29, 2013

Amortized
Cost

Unrealized
Gains

Unrealized
Loss

Estimated
Fair Value

Debt securities:
U.S government and agencies ...................................................... $ 3,497,951 $
Corporate securities ...................................................................... 5,107,853
Total debt securities ................................................................... $ 8,605,804 $

236 $
-
236 $

(52) $ 3,498,135
(44,390) 5,063,463
(44,442) $ 8,561,598

As of December 28, 2014 and December 29, 2013, $2.9 million and $7.0 million are currently in a loss position with a
cumulative unrealized loss of $5,763 and $44,442. The Company may incur future impairment charges if declines in market
values continue and/or worsen and the impairments are no longer considered temporary. All investments with unrealized
losses have been in such position for less than 12 months.

Gross unrealized gains and losses on available-for-sale securities, recorded in accumulated other comprehensive loss were as
follows:

Unrealized gain ................................................................................................................ $
Unrealized loss .................................................................................................................
Net unrealized loss ...........................................................................................................
Deferred federal income tax benefit .................................................................................
Net unrealized loss on investments, net of deferred income tax ...................................... $

- $
(5,763 )
(5,763 )
1,959
(3,804 ) $

236
(44,442)
(44,206)
15,030
(29,176)

December 28
2014

December 29
2013

5. PROPERTY AND EQUIPMENT, NET

Property and equipment are comprised of the following:

Land ................................................................................................................................. $
Building ............................................................................................................................
Equipment ........................................................................................................................
Furniture and fixtures .......................................................................................................
Leasehold improvements ..................................................................................................
Restaurant construction in progress .................................................................................
Total .................................................................................................................................
Less accumulated depreciation .........................................................................................
Property and equipment, net ......................................................................................... $

December 28
2014
3,087,514 $
2,339,219
29,251,119
7,458,292
56,971,815
4,731,045
103,839,004
(32,330,054 )
71,508,950 $

December 29
2013
3,610,453
4,316,263
22,212,594
5,822,813
46,469,088
2,434,332
84,865,543
(26,288,809)
58,576,734

Depreciation expense was $10.9 million, $7.9 million, and $4.6 million during the years ended December 28, 2014, December
29, 2013 and December 30, 2012, respectively.

8. LONG-TERM DEBT

At December 28, 2014, approximately $2.2 million of our restaurant construction in progress is subject to the sale leaseback
transaction described in Note 3.

6. INTANGIBLE ASSETS

Intangible assets are comprised of the following:

December 28
2014

December 29
2013

Amortized intangible assets

Franchise fees ............................................................................................................... $
Trademark .....................................................................................................................
Non-compete ................................................................................................................
Favorable operating leases ............................................................................................
Loan fees ......................................................................................................................
Total .................................................................................................................................
Less accumulated amortization .....................................................................................
Amortized intangible assets, net ....................................................................................

647,363 $
64,934
76,560
239,000
130,377
1,158,234
(377,839 )
780,395

568,363
59,199
76,560
239,000
346,758
1,289,880
(361,009)
928,871

Unamortized intangible assets

Liquor licenses ..............................................................................................................

2,136,103

2,019,142

Total intangible assets, net ............................................................................................. $

2,916,498 $

2,948,013

the agreement. This note was refinanced in 2014. ........................................................... $

31,619,048

Amortization expense for the years ended December 28, 2014, December 29, 2013 and December 30, 2012 was $62,008,
$55,469 and $35,753, respectively. Amortization of favorable leases and loan fees are reflected as part of occupancy and
interest expense, respectively. Loan fees written off to interest expense during the year ended December 28, 2014, December
29, 2013, and December 30, 2012 were $308,497, $76,407 and $141,329, respectively.

Based on the current intangible assets and their estimated useful lives, future intangible-related expense for the next five
years is projected as follows:

Long-term debt consists of the following obligations:

December 28 December 29

2014

2013

Note payable - $56.0 million term loan; payable to RBS with a senior lien on all the

Company’s personal property and fixtures. Scheduled monthly principal payments are

approximately $666,667 plus accrued interest through maturity in December 2019.

Interest is charged based on one-month LIBOR plus an applicable margin, which

ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in

the terms of the agreement. The rate at December 28, 2014 was approximately 2.7%. ... $

56,000,000

Note payable - $20.0 million development line of credit; payable to RBS with a senior

lien on all the Company’s personal property and fixtures. Payments are due monthly

once fully drawn and matures in December 2019. Interest is charged based on one-

month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%,

depending on the lease adjusted leverage ratio defined in the terms of the agreement.

The rate at December 28, 2014 was approximately 2.7%. ............................................... $

5,768,399

Note payable - $46.0 million term loan; payable to RBS with a senior lien on all the

Company’s personal property and fixtures. Scheduled monthly principal payments are

approximately $547,619 plus accrued interest through maturity in April 2018. Interest

is charged based on one-month LIBOR plus an applicable margin, which ranges from

2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of

Note payable - $15.0 million development line of credit; payable to RBS with a senior

lien on all the Company’s personal property and fixtures. Scheduled monthly principal

payments are $178,571 plus accrued interest through maturity in April 2018. Interest

is charged based on one-month LIBOR plus an applicable margin, which ranges from

2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of

Note payable to a bank secured by a senior mortgage on the Brandon Property.

Scheduled monthly principal and interest payments are approximately $8,000 through

maturity in June 2030, at which point a balloon payment of $413,550 is due. Interest is

charged based on a fixed rate of 6.7%, per annum, through June 2017, at which point

the rate will adjust to the U.S. Treasury Securities Rate plus 4.0% (and every seven

Note payable to a bank secured by a junior mortgage on the Brandon Property. The

note matures in 2030 and requires monthly principal and interest installments of

approximately $6,300 until maturity. Interest is charged at a rate of 3.6% per annum.

the agreement. This note was refinanced in 2014. ........................................................... $

12,759,420

years thereafter). This note was paid off in 2014. ............................................................ $

1,081,047

Year
2015 .............................................................................................................................................................. $
2016 ..............................................................................................................................................................
2017 ..............................................................................................................................................................
2018 ..............................................................................................................................................................
2019 ..............................................................................................................................................................
Thereafter .....................................................................................................................................................
Total ............................................................................................................................................................ $

116,557
86,598
85,062
83,387
77,289
331,502
780,395

Amount

The aggregate weighted-average amortization period for intangible assets is 7.6 years.

This note was paid off in 2014. ........................................................................................ $

813,806

7. RELATED PARTY TRANSACTIONS

Total debt .........................................................................................................................

61,768,399

46,273,321

Fees for monthly accounting and financial statement services are paid to an entity owned by a member of the DRH Board of
Directors and a stockholder of the Company. Fees paid during the years ended December 28, 2014, December 29, 2013 and
December 30, 2012 were $515,948, $405,187 and $357,404, respectively.

Less current portion ..........................................................................................................

(8,155,903 )

(8,225,732)

Long-term debt, net of current portion ........................................................................ $

53,612,496 $

38,047,589

See Note 11 for related party operating lease transactions.

On April 15, 2013, the Company entered into a $63.0 million senior secured credit facility with RBS (the “April 2013 Senior

Secured Credit Facility”). The April 2013 Senior Secured Credit Facility consisted of a $46.0 million term loan (the “April

2013 Term Loan”), a $15.0 million development line of credit (the “April 2013 DLOC”), and a $2.0 million revolving line

of credit (the “April 2013 RLOC”). The Company immediately used $34.0 million of the April 2013 Term Loan to refinance

existing outstanding debt with RBS, approximately $10.0 million of the April 2013 Term Loan to refinance and term out the

outstanding balance of the existing development line of credit loan between the Company and RBS, and approximately

8. LONG-TERM DEBT

Long-term debt consists of the following obligations:

December 28 December 29

2014

2013

Note payable - $56.0 million term loan; payable to RBS with a senior lien on all the
Company’s personal property and fixtures. Scheduled monthly principal payments are
approximately $666,667 plus accrued interest through maturity in December 2019.
Interest is charged based on one-month LIBOR plus an applicable margin, which
ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in
the terms of the agreement. The rate at December 28, 2014 was approximately 2.7%. ... $

Note payable - $20.0 million development line of credit; payable to RBS with a senior
lien on all the Company’s personal property and fixtures. Payments are due monthly
once fully drawn and matures in December 2019. Interest is charged based on one-
month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%,
depending on the lease adjusted leverage ratio defined in the terms of the agreement.
The rate at December 28, 2014 was approximately 2.7%. ............................................... $

Note payable - $46.0 million term loan; payable to RBS with a senior lien on all the
Company’s personal property and fixtures. Scheduled monthly principal payments are
approximately $547,619 plus accrued interest through maturity in April 2018. Interest
is charged based on one-month LIBOR plus an applicable margin, which ranges from
2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of
the agreement. This note was refinanced in 2014. ........................................................... $

Note payable - $15.0 million development line of credit; payable to RBS with a senior
lien on all the Company’s personal property and fixtures. Scheduled monthly principal
payments are $178,571 plus accrued interest through maturity in April 2018. Interest
is charged based on one-month LIBOR plus an applicable margin, which ranges from
2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of
the agreement. This note was refinanced in 2014. ........................................................... $

Note payable to a bank secured by a senior mortgage on the Brandon Property.
Scheduled monthly principal and interest payments are approximately $8,000 through
maturity in June 2030, at which point a balloon payment of $413,550 is due. Interest is
charged based on a fixed rate of 6.7%, per annum, through June 2017, at which point
the rate will adjust to the U.S. Treasury Securities Rate plus 4.0% (and every seven
years thereafter). This note was paid off in 2014. ............................................................ $

Note payable to a bank secured by a junior mortgage on the Brandon Property. The
note matures in 2030 and requires monthly principal and interest installments of
approximately $6,300 until maturity. Interest is charged at a rate of 3.6% per annum.
This note was paid off in 2014. ........................................................................................ $

56,000,000

5,768,399

31,619,048

12,759,420

1,081,047

813,806

Total debt .........................................................................................................................

61,768,399

46,273,321

Less current portion ..........................................................................................................

(8,155,903 )

(8,225,732)

Long-term debt, net of current portion ........................................................................ $

53,612,496 $

38,047,589

On April 15, 2013, the Company entered into a $63.0 million senior secured credit facility with RBS (the “April 2013 Senior
Secured Credit Facility”). The April 2013 Senior Secured Credit Facility consisted of a $46.0 million term loan (the “April
2013 Term Loan”), a $15.0 million development line of credit (the “April 2013 DLOC”), and a $2.0 million revolving line
of credit (the “April 2013 RLOC”). The Company immediately used $34.0 million of the April 2013 Term Loan to refinance
existing outstanding debt with RBS, approximately $10.0 million of the April 2013 Term Loan to refinance and term out the
outstanding balance of the existing development line of credit loan between the Company and RBS, and approximately

$800,000 of the April 2013 Term Loan to refinance and term out the outstanding balance of the existing revolving line of
credit loan between the Company and RBS. The remaining balance of the April 2013 Term Loan, approximately $1.2 million,
was used for working capital as well as to pay the fees, costs, and expenses arising in connection with the closing of the April
2013 Senior Secured Credit Facility. The April 2013 Term Loan was for a period of five years. Payments of principal were
based upon an 84-month straight-line amortization schedule, with monthly principal payments of $547,619 plus accrued
interest. The entire remaining outstanding principal and accrued interest on the April 2013 Term Loan was due and payable
on its maturity date of April 15, 2018. The April 2013 DLOC was for a term of two years and was convertible upon maturity
into a term note. The April 2013 RLOC was for a term of two years. Amounts borrowed under the April 2013 Senior Secured
Credit Facility bore interest at a rate of LIBOR plus an applicable margin, which ranged from 2.25% to 3.15%, depending on
the lease adjusted leverage ratio defined in the terms of the agreement. On May 15, 2013, the Company paid down $10.0
million on its April 2013 Term Loan in satisfaction of its post-offering requirement to RBS to utilize up to 40.0% of the
offering proceeds for such purpose.

On March 20, 2014, the Company amended the April 2013 Senior Secured Credit Facility to include a $20.0 million
development line of credit II (the “March 2014 DLOC II”). The March 2014 DLOC II was for a term of two years and was
convertible upon maturity into a term note. The amendment also provided a 25 basis point reduction to the April 2013 Senior
Secured Credit Facility’s applicable margin rate, which reduced the range from 2.5%/3.4% to 2.25%/3.15%, which
commenced April 2014.

On December 16, 2014, the Company entered into a $77.0 million senior secured credit facility with RBS (the “December
2014 Senior Secured Credit Facility”). The December 2014 Senior Secured Credit Facility consist of a $56.0 million term
loan (the “December 2014 Term Loan”), a $20.0 million development line of credit (the “December 2014 DLOC”), and a
$1.0 million revolving line of credit (the “December 2014 RLOC”). The Company used approximately $35.5 million of the
December 2014 Term Loan to refinance existing outstanding debt with RBS and used approximately $20.0 million of the
December 2014 Term Loan to refinance and term out the outstanding balance of the existing development line of credit loan
between the Company and RBS. The remaining balance of the December 2014 Term Loan, approximately $0.5 million,
was used to pay the fees, costs, and expenses associated with the closing of the December 2014 Senior Secured Credit
Facility. The December 2014 Term Loan is for a period of five years. Payments of principal are based upon an 84-month
straight-line amortization schedule, with monthly principal payments of $666,667 plus accrued interest. The interest rate for
the December 2014 Term Loan is LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the
lease adjusted leverage ratio defined in the terms of the agreement. The entire remaining outstanding principal and accrued
interest on the December 2014 Term Loan is due and payable on the maturity date of December 16, 2019. The December
2014 DLOC is for a term of two years and is convertible upon maturity into a term note based on the terms of the agreement
at which time monthly principal payments will be due based on a 84-month straight-line amortization schedule, plus interest,
through maturity on December 16, 2014. The December 2014 RLOC is for a term of two years and no amount was outstanding
as of December 28, 2014.

In connection with the sale-leaseback transactions, described in Note 3, the Company used a portion of the proceeds to apply
payment on outstanding balances under the Company’s Senior Secured Credit Facility and the Brandon senior and junior
Property mortgages, totaling approximately $3.2 million and approximately $1.9 million, respectively.

The Company’s evaluation of the December 2014 debt refinancing concluded that the terms of the debt were not substantially
modified.

Based on the long-term debt terms that existed at December 28, 2014, the scheduled principal maturities for the next five
years and thereafter are summarized as follows:

Year

Amount

2015 ............................................................................................................................................................... $
2016 ...............................................................................................................................................................
2017 ...............................................................................................................................................................
2018 ...............................................................................................................................................................
2019 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................

8,155,903
8,935,416
8,935,416
8,935,416
26,806,248
-

Total ............................................................................................................................................................. $

61,768,399

Interest expense was $2.3 million, $1.7 million and $1.3 million (including related party interest expense of $0, $0 and
$52,724) for the years ended December 28, 2014, December 29, 2013 and December 30, 2012, respectively.

The current debt agreement contains various customary financial covenants generally based on the performance of the
specific borrowing entity and other related entities. The more significant covenants consist of a minimum debt service
coverage ratio and a maximum lease adjusted leverage ratio, both of which we are in compliance with as of December 28,
2014.

At December 28, 2014, the Company has four 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. The swap agreements have a combined notional amount of
$38.5 million at December 28, 2014. Under the swap agreements, the Company receives interest at the one-month LIBOR
and pays a fixed rate. The April 2012 swap has a rate of 1.4% (notional amount of $9.9 million) and expires April 2019, the
October 2012 swap has a rate of 0.9% (notional amount of $4.1 million) and expires October 2017, the July 2013 swap has
a rate of 1.4% (notional amount of $11.6 million) and expires April 2018, and the May 2014 forward swap has a rate of
1.54% (notional amount of $12.9 million) and expires April 2018. The fair value of these swap agreements was $259,626
and $327,561 at December 28, 2014 and December 29, 2013, respectively. 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 15
for additional information pertaining to interest rate swaps.

9. STOCK-BASED COMPENSATION

The Company established a Stock Incentive Plan in 2011 (“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. The plan permits the grant and award of 750,000 shares of common stock by way of stock options
and/or restricted stock. Stock options must be awarded at exercise prices at least equal to or greater than 100.0% 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.

During fiscal 2014, 2013, and 2012, restricted shares were issued to certain team members at a weighted-average grant date
fair value of $4.82, $5.85, and $3.63, respectively. Restricted shares are generally granted with a per share purchase price at
100.0% of the fair market value on the date of grant. Based on the Stock Award Agreement, shares vest ratably over a three
or one year period or upon the three year anniversary of the granted shares, the vesting terms are determined by the
Committee. Unrecognized stock-based compensation expense of $593,813 at December 28, 2014 will be recognized over
the remaining weighted-average vesting period of 1.9 years. The total fair value of shares vested during years ended
December 28, 2014, December 29, 2013, and December 30, 2012 was $193,996, $169,593, and $98,000, respectively. Under
the Stock Incentive Plan, there are 544,102 shares available for future awards at December 28, 2014.

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 December
28, 2014 and December 29 2013, we issued 11,015 and 4,773 shares, respectively. No shares were issued in fiscal 2012. Under
the ESPP, there are 234,212 shares available for future awards at December 28, 2014.

The following table presents the restricted stock transactions for fiscal 2014:

Unvested, December 29, 2013 .....................................................................................................................
Granted ..........................................................................................................................................................
Vested............................................................................................................................................................
Expired/Forfeited ..........................................................................................................................................
Unvested, December 28, 2014 .....................................................................................................................

Number of
Restricted
Stock Shares
116,667
91,966
(41,031)
(2,735)
164,867

The following table presents the restricted stock transactions for fiscal 2013:

Unvested, December 30, 2012 .....................................................................................................................
Granted ..........................................................................................................................................................
Vested............................................................................................................................................................
Expired/Forfeited ..........................................................................................................................................
Unvested, December 29, 2013 .....................................................................................................................

Number of
Restricted
Stock Shares
54,900
145,575
(26,700)
(57,108)
116,667

The following table presents the restricted stock transactions for fiscal 2012:

Unvested, December 25, 2011 .....................................................................................................................
Granted ..........................................................................................................................................................
Vested............................................................................................................................................................
Expired/Forfeited ..........................................................................................................................................
Unvested, December 30, 2012 .....................................................................................................................

Number of
Restricted
Stock Shares
60,400
28,800
(20,800)
(13,500)
54,900

On July 30, 2007, DRH granted options for the purchase of 150,000 shares of common stock to the directors of the Company
at an exercise price of $2.50 per share. These options vested ratably over a three-year period and were set to expire six years
from issuance, July 30, 2013. At December 29, 2013, all 150,000 options were fully vested and were exercised either through
cash or cashless exercise at a price of $2.50 per share. The intrinsic value of options exercised in 2013 was $679,680.

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 expire six years from issuance, July 30, 2016. Once
vested, the options can be exercised at a price of $2.50 per share. At December 28, 2014, 210,000 shares of authorized
common stock are reserved for issuance to provide for the exercise of these options. The intrinsic value of outstanding options
was $522,900, $514,500, and $315,000 as of December 28, 2014, December 29, 2013, and December 30, 2012, respectively.

Stock-based compensation of $338,810, $278,290 and $220,449 was recognized during the years ended December 28, 2014,
December 29, 2013 and December 30, 2012, respectively, as restaurant compensation costs in the Consolidated Statements
of Operations and as additional paid-in capital on the Consolidated Statement of Stockholders' Equity to reflect the fair value
of shares vested.

The Company has authorized 10,000,000 shares of preferred stock at a par value of $0.0001. No preferred shares are issued
or outstanding as of December 28, 2014. 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.

10. INCOME TAXES

The provision (benefit) for income taxes consists of the following components for the fiscal years ended December 28, 2014,
December 29, 2013 and December 30, 2012:

December 28
2014

Fiscal Years Ended
December 29
2013

December 30
2012

Federal
Current ............................................................................................... $
Deferred .............................................................................................

- $
(1,628,568)

- $
(306,951)

-
(119,304)

State
Current ...............................................................................................
Deferred .............................................................................................
Income tax benefit ............................................................................ $

127,312
(205,480)
(1,706,736) $

74,773
(29,272)
(261,450) $

133,120
(13,983)
(167)

The 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 (loss). The items causing this difference are as follows:

Income tax provision (benefit) at federal statutory rate ..................... $
State income tax provision (benefit) ..................................................
Permanent differences ........................................................................
Tax credits ..........................................................................................
Income tax benefit ............................................................................ $

December 28
2014
(1,011,580) $
(51,689)
346,388
(989,855)
(1,706,736) $

Fiscal Years Ended
December 29
2013

December 30
2012

(43,228) $
30,032
271,151
(519,405)
(261,450) $

93,490
39,169
84,140
(216,966)
(167)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company expects the deferred
tax assets to be fully realizable within the next several years. Significant components of the Company's deferred income tax
assets and liabilities are summarized as follows:

December 28
2014

December 29
2013

Deferred tax assets:

Net operating loss carry forwards ................................................................................. $
Deferred rent expense ...................................................................................................
Start-up costs ................................................................................................................
Tax credit carry-forwards .............................................................................................
Interest rate swaps ........................................................................................................
Investments ...................................................................................................................
Sale leaseback deferred gain .........................................................................................
Stock-based compensation ............................................................................................
Other .............................................................................................................................
Total deferred tax assets ...................................................................................................

915,900 $
481,543
99,261
3,417,716
88,121
1,959
788,195
310,790
397,117
6,500,602

983,682
131,249
130,136
2,427,861
111,218
15,030
-
129,514
186,814
4,115,504

Deferred tax liabilities:

Tax depreciation in excess of book ...............................................................................
Goodwill amortization in excess of book .....................................................................
Total deferred tax liability ................................................................................................

3,069,315
470,647
3,539,962

2,708,544
244,199
2,952,743

Net deferred income tax assets ...................................................................................... $

2,960,640 $

1,162,761

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

The Company expects to use net operating loss and general business tax credit carryforwards before its 20-year expiration.
A significant amount of net operating loss carry forwards were used when the Company purchased nine affiliated restaurants
in 2010, which were previously managed by DRH. As of December 28, 2014, the Company has available federal net operating
loss carryforwards of approximately $3.3 million. Of that amount, approximately $600,000 relates to stock-based
compensation tax deductions in excess of book compensation expense that will be credited to additional paid in capital in
future periods when such deductions reduce taxes payable as determined based on a "with-and-without" approach. Net
operating losses relating to such benefits are not included in the table above. General business tax credits of $3.4 million will
expire between 2028 and 2035.

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 28, 2014.

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 2011 through 2013.

11. OPERATING LEASES (INCLUDING RELATED PARTIES)

Lease terms range from five to 20 years, generally include renewal options, and frequently require us to pay a proportionate
share of real estate taxes, insurance, common area maintenance, and other operating costs. Some restaurant leases provide
for contingent rental payments based on sales thresholds.

Total rent expense was $5.5 million, $5.0 million and $3.5 million for the fiscal years ended December 28, 2014, December
29, 2013 and December 30, 2012, respectively (of which $112,955, $80,216 and $84,427 for the fiscal years ended December
28, 2014, December 29, 2013, and December 30, 2012, respectively, were paid to a related parties). On October 30, 2014,
Detroit Burgers, Inc., one of our wholly-owned subsidiaries, acquired 100.0% of the membership interests of DMM Group,
LLC from a trust controlled by the spouse of our President, CEO and Chairman, T. Michael Ansley for $250,000. DMM
Group’s sole asset is the land and improvements used for our Detroit Bagger Dave’s restaurant. Also, on October 30, 2014
Berkley Burgers, Inc., owned by a related party, sold 100.0% of their membership interests to a third-party REIT, which was
also the group that purchased a number of our location as part of our sales leaseback transaction, as described in Note 3.

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 28, 2014 are summarized as
follows:

Year
2015 ............................................................................................................................................................... $
2016 ...............................................................................................................................................................
2017 ...............................................................................................................................................................
2018 ...............................................................................................................................................................
2019 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................
Total ............................................................................................................................................................. $

Amount

7,555,779
7,331,631
7,058,429
6,772,262
6,406,398
36,590,287
71,714,786

Scheduled future minimum lease payments for each of the five years and thereafter for non-cancelable operating leases for
restaurants under development, including leases that are part of the sale leaseback transaction described in Note 3, with initial
or remaining lease terms in excess of one year at December 28, 2014 are summarized as follows:

Year
2015 ............................................................................................................................................................... $
2016 ...............................................................................................................................................................
2017 ...............................................................................................................................................................
2018 ...............................................................................................................................................................
2019 ...............................................................................................................................................................
Thereafter ......................................................................................................................................................
Total ............................................................................................................................................................. $

Amount

677,264
1,096,417
1,098,089
1,099,769
1,101,489
7,142,152
12,215,180

12. COMMITMENTS AND CONTINGENCIES

The Company’s ADA requires DRH to open 32 restaurants by March 1, 2017. Failure to develop restaurants in accordance
with the schedule detailed in the agreement could lead to potential penalties of up to $50,000 for each undeveloped restaurant,
payment of the initial franchise fees for each undeveloped restaurant, and loss of rights to development territory. As of
December 28, 2014, we have opened 24 of the 32 restaurants required by the ADA. With the remaining eight restaurants,
along with two additional franchise agreements, we expect the Company will operate 52 BWW restaurants by 2017, exclusive
of potential additional BWW restaurant acquisitions.

The Company is required to pay BWLD royalties (5.0% of net sales) and advertising fund contributions (3.0% of net sales
and 0.5% of net sales for certain cities) for the term of the individual franchise agreements. The Company incurred $5.3
million, $4.7 million, and $3.4 million in royalty expense for the fiscal years ended December 28, 2014, December 29, 2013,
and December 30, 2012, respectively. Advertising fund contribution expenses were $3.5 million, $2.8 million, and $2.0
million for the fiscal years ended December 28, 2014, December 29, 2013, and December 30, 2012, respectively.

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 can range from approximately
$50,000 to approximately $700,000 depending on an individual restaurant's needs.

In 2013 and 2012 we had a defined contribution 401(k) plan whereby eligible team members could contribute pre-tax wages
in accordance with the provisions of the plan. We matched 100.0% of the first 3.0% and 50.0% of the next 2.0% of
contributions made by eligible team members. Matching contributions of approximately $250,001 and $239,351 were made
by us during the year ended December 29, 2013, December 30, 2012, respectively. Effective January 1, 2014, the Company
ceased the matching program in favor of an annual discretionary contributions to the 401(k). For fiscal 2014, the discretionary
match was 100.0% of 2.0% contribute, this equated to $168,446.

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. While unfavorable
outcomes could have adverse effects on the Company's business, results of operations, and financial condition, management
believes that the Company is adequately insured and does not believe an unfavorable outcome of any pending or threatened
proceedings is probable or reasonably possible. Therefore, no separate reserve or disclosure has been established for these
types of legal proceedings.

13. EARNINGS PER COMMON SHARE

The following is a reconciliation of basic and fully diluted earnings per common share for the years ended December 28,
2014, December 29, 2013 and December 30, 2012:

Income (loss) available to common stockholders............................... $

December 28
2014
(1,268,497) $

Fiscal Years Ended
December 29
2013

December 30
2012

134,308 $

180,099

Weighted-average shares outstanding ................................................
Effect of dilutive securities ................................................................
Weighted-average shares outstanding - assuming dilution ................

26,092,919
-
26,092,919

23,937,188
120,884
24,058,072

18,949,556
142,293
19,091,849

Earnings per common share ............................................................... $
Earnings per common share - assuming dilution ............................... $

(0.05) $
(0.05) $

0.01 $
0.01 $

0.01
0.01

14. SUPPLEMENTAL CASH FLOWS INFORMATION

Other Cash Flows Information

Cash paid for interest was $1.9 million, $1.7 million, and $1.3 million during the years ended December 28, 2014, December
29, 2013, and December 30, 2012, respectively.

Cash paid for income taxes was $22,000, $65,500 and $386,204 during the years ended December 28, 2014, December 29,
2013, and December 30, 2012, respectively.

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

Noncash investing transactions for property and equipment not yet paid for December 28, 2014, December 29, 2013, and
December 30, 2012 was $3.1 million, $1.9 million, and $0.9 million.

15. 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 28, 2014 and December 29, 2013, respectively, our financial instruments consisted of cash and cash
equivalents, accounts receivable, available-for-sale investments, accounts payable, 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 8 for additional information pertaining to interest rates swaps.

The estimated fair values of the Company’s investment portfolio are based on prices provided by a third party pricing service
and a third party investment manager. The prices provided by these services are based on quoted market prices, when
available, non-binding broker quotes, or matrix pricing. The third party pricing service and the third party investment manager
provide a single price or quote per security and the Company has not historically adjusted security prices. The Company
obtains an understanding of the methods, models and inputs used by the third party pricing service and the third party
investment manager, and has controls in place to validate that amounts provided represent fair values. Our investments are
classified as a Level 2 measurement as these securities are not actively traded in the market, but are observable based on the
quoted prices provided by our Portfolio managers

As of December 28, 2014 and December 29, 2013, our total debt was approximately $61.8 million and $46.3 million,
respectively, which approximated fair value. The Company estimates the fair value of its fixed-rate debt using discounted
cash flow analysis based on the Company’s incremental borrowing rate (Level 2).

There were no transfers between levels of the fair value hierarchy during the fiscal years ended December 28, 2014 and
December 29, 2013, respectively.

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 28,
2014:

FAIR VALUE MEASUREMENTS

Description
Interest rate swaps ............................................. $

Level 1 Level 2 Level 3
- $ (259,626) $

Total
- $ (259,626) $

Asset/(Liability)
Total

(259,626)

Debt securities
Obligations of states/municipals ..........................
Corporate securities ..............................................
Total debt securities ...........................................
Total debt securities and swaps ......................... $

- 1,185,983
- 1,731,249
- 2,917,232
- $ 2,657,606 $

1,185,983
1,731,249
2,917,232
2,657,606

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 29,
2013:

FAIR VALUE MEASUREMENTS

Description
Interest rate swaps ............................................. $

Level 1 Level 2 Level 3
- $ (327,561) $

Total
- $ (327,561) $

Asset/(Liability)
Total

(327,561)

Debt securities
U.S. government and agencies .............................
Corporate securities ..............................................
Total debt securities ...........................................
Total debt securities and swaps ......................... $

- 3,498,135
- 5,063,463
- 8,561,598
- $ 8,234,037 $

3,498,135
5,063,463
8,561,598
8,234,037

16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes each component of Accumulated Other Comprehensive Income (loss):

Year Ended December 28, 2014

Interest Rate
Swaps

Investments

Total

Beginning balance ............................................................................. $
Gain(loss) recorded to other comprehensive income ........................
Tax benefit (expense) ........................................................................
Other comprehensive income ............................................................

(216,188) $
67,933
(23,097 )
44,836

(29,176 ) $
38,443
(13,071 )
25,372

(245,364)
106,376
(36,168)
70,208

Accumulated OCI ............................................................................ $

(171,352) $

(3,804 ) $

(175,156)

Year Ended December 29, 2013

Interest Rate
Swaps

Investments

Total

Beginning balance ............................................................................. $
Gain(loss) recorded to other comprehensive income ........................
Tax benefit (expense) ........................................................................
Other comprehensive income (loss) ..................................................

(284,294) $
103,190
(35,084)
68,106

- $
(44,206)
15,030
(29,176)

(284,294)
58,984
(20,054)
38,930

Accumulated OCI ............................................................................ $

(216,188) $

(29,176) $

(245,364)

Year Ended December 30, 2012

Interest Rate
Swaps

Investments

Total

Beginning balance .............................................................................. $
Gain(loss) recorded to other comprehensive income .........................
Tax benefit (expense) .........................................................................
Other comprehensive income (loss) ...................................................

- $
(430,751)
146,457
(284,294)

- $
-
-
-

-
(430,751)
146,457
(284,294)

Accumulated OCI ............................................................................. $

(284,294) $

- $

(284,294)

17. SUMMARY QUARTERLY FINANCIAL DATA (unaudited)

Three Months Ended (unaudited)

March 30

2014

June 29
2014

September 28 December 28

2014

Revenue ....................................................................... $ 30,473,014 $ 30,009,621 $ 32,782,092 $ 35,148,721

Operating profit (loss) ................................................

778,170

291,659

185,059

(1,897,168)

Income (loss) before income taxes .............................

314,799

(179,368)

(230,209)

(2,880,455)

Net income (loss) ......................................................... $

367,857 $

(100,496) $

(182,109) $

(1,353,749)

Basic earnings per share ............................................... $
Fully diluted earnings per share .................................. $

0.01 $
0.01 $

(0.00) $
(0.00) $

(0.01) $
(0.01) $

(0.05)
(0.05)

Weighted average number of common shares

outstanding

Basic ......................................................................
Diluted ..................................................................

26,048,805
26,153,595

26,067,958
26,067,958

26,107,627
26,107,627

26,147,287
26,147,287

Three Months Ended (unaudited)

March 31

2013

June 30
2013

September 29 December 29

2013

Revenue ....................................................................... $ 27,079,114 $ 26,962,970 $ 26,368,090 $ 28,475,965

Operating profit (loss) ................................................

807,112

531,860

307,749

(206,444)

Income (loss) before income taxes .............................

340,220

(31,553)

55,366

(491,175)

Net income (loss) ......................................................... $

238,400 $

3,637 $

69,810 $

(177,539)

Basic earnings per share ............................................... $
Fully diluted earnings per share .................................. $

0.01 $
0.01 $

0.00 $
0.00 $

(0.01)
(0.01)

Weighted average number of common shares

outstanding

Basic ......................................................................
Diluted ..................................................................

18,959,846
19,094,786

24,680,247
24,810,611

26,054,118
26,186,263

26,054,443
26,054,443

ITEM 9.
FINANCIAL DISCLOSURE

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of December 28, 2014, an evaluation was performed under the supervision of and with the participation of our
management, including our principal executive and principal financial officers, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation, our management, including our principal
executive and principal financial and accounting officers, concluded that our disclosure controls and procedures were
effective as of December 28, 2014.

Evaluation of Internal Control and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f). There are inherent limitations in the effectiveness of any system of internal
control. Accordingly, even an effective system of internal control can provide only reasonable assurance with respect to
financial statement preparation.

Under the supervision and with the participation of our management, including our principal executive and principal financial
and accounting officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of
December 28, 2014. This evaluation was based on criteria for effective internal control over financial reporting described in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 Framework). Based on our evaluation under the framework in Internal Control — Integrated Framework,
our management concluded that our internal control over financial reporting was not effective as of December 28, 2014.
Refer to page 37 for management's report. Our management team has reviewed and discussed the material weakness identified
in management’s report with the Audit Committee and is in the process of developing and implementing an action plan to
resolve it.

Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting
which is included in this Annual Report.

Changes in Internal Control Over Financial Reporting

There was a change in the Company's internal control over financial reporting during the quarter ended December 28, 2014,
as discussed on page 37, that has materially affected, or is reasonably likely to materially affect the Company's internal
control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Diversified Restaurant Holdings, Inc. and Subsidiaries

Southfield, Michigan

We have audited Diversified Restaurant Holdings, Inc. and Subsidiaries’ internal control over financial reporting as of
December 28, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Diversified Restaurant Holdings, Inc. and
Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Report By
Diversified Restaurant Holding, Inc.’s Management on Internal Controls Over Financial Reporting”. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Diversified Restaurant Holdings, Inc. and Subsidiaries did not maintain, in all material respects, effective
internal control over financial reporting as of December 28, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Diversified Restaurant Holdings, Inc. and Subsidiaries as of December 28, 2014 and
December 29, 2013 and the related consolidated statements of comprehensive income (loss), stockholders’ equity (deficit),
and cash flows for each of the three fiscal years in the period ended December 28, 2014 and our report dated March 13, 2015
expressed an unqualified opinion on those consolidated financial statements.

/s/ BDO USA, LLP

Troy, Michigan
March 13, 2015

Certain information required by this Part III is omitted from this report and is incorporated by reference to our Definitive
Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of
Stockholders to be held in 2015 (the “Proxy Statement”).

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the Proxy Statement.

ITEM 12.
RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

The information required by this item is incorporated by reference to the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The information required by this item is incorporated by reference to the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the Proxy Statement.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

(a) (1) Financial Statements. The following financial statements and reports of independent registered public accounting firms
of Diversified Restaurant Holdings and its subsidiaries are filed as part of this report:

(cid:127)

Reports of Independent Registered Public Accounting Firm — BDO USA, LLP

Report by Diversified Restaurant Holdings, Inc.’s Management on Internal Control Over Financial
Reporting

Consolidated Balance Sheets as of December 28, 2014 and December 29, 2013

Consolidated Statements of Operations for the Fiscal Years Ended December 28, 2014, December
29, 2013, and December 30, 2012

Consolidated Statement of Comprehensive Income for the Fiscal Years Ended December 28, 2014,
December 30, 2013, and December 30, 2012

Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended December 28, 2014,
December 29, 2013, and December 30, 2012

Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 2014, December
29, 2013, and December 30, 2012

Notes to Consolidated Financial Statements

The consolidated financial statements, the notes to the consolidated financial statements, and the reports of independent
registered public accounting firm listed above are contained in Item 8 of this report.

(2) Financial Statement Schedules

Not applicable

(b) Index to Exhibits required by Item 601 of Regulation S-K:

EXHIBIT
NO.

EXHIBIT DESCRIPTION

2.1

2.2

2.3

2.4

2.5

Purchase Agreement dated July 13, 2012 (incorporated by reference to Exhibit 2.1 of our Form 8-K filed
September 28, 2012)

Asset Purchase Agreement between the Company and Screamin’ Hot Florida, LLC and Screamin’ Hot
Trinity, LLC, dated April 1, 2014 (incorporated by reference to Exhibit 10.2 of our Form 10-Q filed May 9,
2014).

First Amendment to Asset Purchase Agreement, dated May 27, 2014 (incorporated by reference to Exhibit 2.2
of our Form 8-K filed July 2, 2014).

Purchase and Sale Agreement dated as of October 6, 2014 (incorporated by reference to Exhibit 2.1 of our
Form 8-K filed November 6, 2014)

Amendment to Purchase and Sale Agreement dated as of October 30, 2014 (incorporated by reference to
Exhibit 2.2 of our Form 8-K filed November 6, 2014)

2.6

Form of Lease (incorporated by reference to Exhibit 2.3 of our Form 8-K filed November 6, 2014)

2.7

3.1

3.2

3.3

4.1

10.1

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

Form of Lease Amendment (incorporated by reference to Exhibit 2.4 of our Form 8-K filed November 6,
2014)

Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of our registration statement on Form
SB-2 (SEC File Number 333-145316) filed on August 10, 2007)

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of our Form 8-K filed August 29,
2012)

First Amendment to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of our Form 8-
K filed October 31, 2012)

Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 of our registration statement on Form
SB-2 (SEC File Number 333-145316) filed on August 10, 2007)

Buffalo Wild Wings Area Development Agreement dated July 18, 2003, by and between Buffalo Wild Wings
International, Inc. and MCA Enterprises, Inc. (subsequently assigned to AMC Wings, Inc., a wholly-owned
subsidiary of the Company) (incorporated by reference to Exhibit 10.3 of our Form 10-Q filed November 12,
2010)

Amendment to Buffalo Wild Wings Area Development Agreement dated December 27, 2003 (incorporated
by reference to Exhibit 10.12 of our Form 10-Q filed November 12, 2010)

Transfer Agreement dated March 20, 2007, by MCA Enterprises Brandon, Inc. (formerly MCA Enterprises,
Inc.), T. Michael Ansley, Mark C. Ansley, Thomas D. Ansley, Steven Menker, Jason Curtis and AMC Wings,
Inc. and Buffalo Wild Wings International, Inc. (incorporated by reference to Exhibit 10.4 of our Form 10-Q
filed November 12, 2010)

Amendment to Buffalo Wild Wings Area Development Agreement dated March 20, 2007 (incorporated by
reference to Exhibit 10.5 of our Form 10-Q filed November 12, 2010)

Amendment to Buffalo Wild Wings Area Development Agreement dated November 5, 2007 (incorporated by
reference to Exhibit 10.5 of our Form 10-Q filed November 12, 2010)

Form of Stock Option Agreement (incorporated by reference to Exhibit 10.1 of our Form 8-K filed August 5,
2010)*

Form of Stock Option Agreement, dated July 30, 2007, entered into by and between the Company and
Directors Gregory Stevens, T. Michael Ansley, Jay Alan Dusenberry, Jason T. Curtis and David Ligotti
(incorporated by reference to Exhibit 10.24 of our Form 10-K filed March 26, 2010)*

Diversified Restaurant Holdings, Inc. Performance Bonus Plan (incorporated by reference to Exhibit 10.1 of
our Form 8-K filed March 11, 2013)*

2013 Diversified Restaurant Holdings, Inc. Short-Term Incentive Program (incorporated by reference to
Exhibit 10.2 of our Form 8-K filed March 11, 2013)*

$62M Senior Secured Credit Facility with RBS Citizens, N.A., as administrative agent, Wells Fargo Bank,
N.A., as documentation agent, and the other banks party thereto, dated April 15, 2013 (incorporated by
reference to Exhibit 10.1 of our form 8-K filed April 15, 2013)

Second Amendment to Credit Agreement dated March 20, 2014 (incorporated by reference to Exhibit 10.1 of
our Form 8-K filed March 26, 2014)

$77.0M Senior Secured Credit Facility with RBS Citizens, N.A., as administrative agent, dated December 16,
2014

Subsidiaries of Diversified Restaurant Holdings, Inc.

Consent of BDO USA, LLP

31.1

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

31.2

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

32.1

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

32.2

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

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Document

101.DEF XBRL Taxonomy Extension Definition Document

101.LAB XBRL Taxonomy Extension Labels Document

101.PRE XBRL Taxonomy Extension Presentation Document

Management contract or compensatory plan

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 13, 2015

DIVERSIFIED RESTAURANT HOLDINGS, INC.

By:

/s/ T. Michael Ansley
T. Michael Ansley
President, Chief Executive Officer, Director
Chairman of the Board, and Principal Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

/s/ T. Michael Ansley
T. Michael Ansley
President, Chief Executive Officer, Director,
Chairman of the Board, and Principal Executive Officer

/s/ David G. Burke
David Gregory Burke
Treasurer, Chief Financial Officer, Director, Principal Financial Officer,
and Principal Accounting Officer

/s/ Jay Alan Dusenberry
Jay Alan Dusenberry
Secretary, Director

/s/ David Ligotti
David Ligotti
Director

/s/ Gregory J. Stevens
Gregory J. Stevens
Director

/s/ Joseph M. Nowicki
Joseph M. Nowicki
Director

/s/ Philip Friedman
Philip Friedman
Director

Dated: March 13, 2015

(This page intentionally left blank)

Leadership

2014

ANNUAL REPORT
Diversified Restaurant Holdings

Leadership
LEADERSHIP
T. Michael Ansley
President, Chief Executive Officer,
and Chairman of the Board of Directors

David G. Burke
Chief Financial Officer, Treasurer,
and Director

Jason Curtis
Chief Operating Officer

Toni Werner
Controller

Lupita Distaso
Vice President of Purchasing

Misty Sirch
Director of Real Estate

Lindsay Thayer
Director of Marketing

BOARD OF DIRECTORS
T. Michael Ansley *
Chairman of the Board of Directors,
President and Chief Executive Officer –
Diversified Restaurant Holdings, Inc.

David G. Burke
Chief Financial Officer and Treasurer –
Diversified Restaurant Holdings, Inc.

Jay Alan Dusenberry 1,2,*
Vice President – Marisa Manufacturing

Philip Friedman 1,2
Chief Executive Officer – Salsarita’s Fresh Cantina

David Ligotti
Owner – Oakwood Business Services, LLC

Joseph M. Nowicki 1,*
Executive Vice President and Chief Financial
Officer – Beacon Roofing Supply

Gregory J. Stevens 2
Strategic Engineer and Partner – Cold Heading
Company

1 Audit Committee
2 Compensation Committee
* Committee Chairman

Shareholder’s Information
CORPORATE HEADQUARTERS
Diversified Restaurant Holdings, Inc.
27680 Franklin Road
Southfield, Michigan 48034
248.223.9160
www.diversifiedrestaurantholdings.com

INVESTOR RELATIONS
Investors, stockbrokers, security
analysts and others seeking information
about Diversified Restaurant Holdings
should contact:

ANNUAL MEETING
Diversified Restaurant Holdings’ Annual
Meeting of Shareholders will be held on
Thursday, May 21, 2015 at 10:00 am at:

1218 Randolph St.,
Detroit, Michigan 48226

TRANSFER AGENT
For services such as change of address,
replacement of lost certificates and
changes in registered ownership, or for
inquiries as to your account, contact:

Computershare
250 Royall St.
Canton, Massachusetts 02021
(800) 368-5948
www.computershare.com

Sheryl Freeman
ICR
646-277-1284
Sheryl.Freeman@icrinc.com

Raphael Gross
ICR
203-682-8253
Raphael.Gross@icrinc.com

ATTORNEYS
Dickinson Wright PLLC
Ann Arbor, Michigan

INDEPENDENT AUDITORS
BDO USA, LLP
Troy, Michigan

STOCK INFORMATION
Diversified Restaurant Holdings’stock is quoted
on the NASDAQ Capital Market under the
symbol BAGR.

27680 Franklin Road
Southfield, MI 48034
248.223.9160