UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) Of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 2011
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission file number 000-18590
GOOD TIMES RESTAURANTS INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or
organization)
601 Corporate Circle, Golden, Colorado
(Address of principal executive offices)
84-1133368
(I.R.S. Employer Identification Number)
80401
(Zip Code)
Issuer's telephone number: (303) 384-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $.001 par value, Preferred Stock $.01 par
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Yes [x] No [ ]
Yes [ ] No [x]
Yes [ ] No [x]
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
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 and (2) has been subject to such filing requirements for the past
90 days.
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 during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such
files)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or
Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy of 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 definition of "large accelerated filer", "accelerated filer", "non-
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[x]
Indicate by check mark whether the registration is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
As of December 15, 2011, the aggregate market value of the 896,698 shares of common stock held by non
affiliates of the issuer, based on the closing sales price of the common stock on December 15, 2011 of $1.39 per
share as reported on the Nasdaq Capital Market, was $1,246,410.
As of December 15, 2011, the issuer had 2,726,214 shares of common stock outstanding.
Yes [ ] No [x]
Yes [ ] No [x]
[x]
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
23.1
31.1
31.2
32.1
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Removed and Reserved
PART I
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships, Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Signatures
Consent of HEIN & ASSOCIATES LLP
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Certification of Controller pursuant to 18 U.S.C. Section 1350
Certification of Chief Executive Officer and Controller pursuant to 18
U.S.C. Section 1350
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19 - 27
27
F1 - F19
28
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28
29 - 33
34 - 36
37
38 - 39
39
40 - 42
43
2
ITEM 1. BUSINESS
PART I
Overview: Good Times Restaurants Inc., a Nevada corporation (the "Company"), was organized in 1987. The Company is essentially a holding company for its wholly owned
subsidiary, Good Times Drive Thru Inc. ("GTDT"), which is engaged in the business of developing, owning, operating and franchising hamburger-oriented drive-through restaurants
under the name Good Times Burgers & Frozen Custard. Most of our restaurants are located in the front-range communities of Colorado but we also have franchised restaurants in North
Dakota and Wyoming. The terms "Good Times", "we", "us" and "our" where used herein refer to the operations of GTDT and of the Company.
Recent Developments: We experienced fairly dramatic same store sales declines immediately after the beginning of the recession in the spring of 2008 that continued through late
spring of 2010 after several consecutive years of same store sales increases. Beginning in June 2010 our same store sales trends began to flatten out and have increased for sixteen
consecutive months through November 2011, including an increase of 6.2% in fiscal 2011. We have experienced increases in both customer traffic and our average transaction amount as
a result of the implementation of more price choice for our guests across our menu and ongoing new product initiatives discussed below in "Concept and Business Strategy."
Our Income from Operations improved by $1,247,000 in fiscal 2011 compared to fiscal 2010. In addition, we estimate that commodity cost increases negatively impacted our Income
from Operations by approximately $400,000 over and above our menu price increases. We are focusing on sustaining our same store sales momentum through improving our core value
proposition for our customers and continuing to evolve the brand away from mainstream hamburger quick service restaurants' standard fare. While we are and will remain all about
burgers, fries and frozen custard, we are elevating each category's fresh, handcrafted and unique offerings. After extensive consumer research and feedback in fiscal 2011, we will be
adding focused, "horizontal" menu variety through one or two new product categories in fiscal 2012 in addition to continuing to elevate flavor profiles and brand attributes in each of our
existing menu categories. We are currently in testing and development of several exciting new products that we believe will drive incremental transactions, average check growth and
margin improvement.
From August through November 2011 we rolled out new menu boards across our entire system of restaurants for improved consistency and point of purchase communications. The new
system provides improved flexibility in the frequency of point of purchase messaging and promotion. We expect to implement a comprehensive exterior reimaging test in one restaurant
by January 2012 that will be the prototype for upgrading older restaurants to a like-new condition. The reimaging includes sign faces, all vertical fascias, graphics, lighting, paint scheme
and patio enhancements. We anticipate the reimaging to be very cost effective, totaling less than $40,000 per restaurant. We will evaluate the results of the test and we plan to
systematically apply it to older, double drive thru stores throughout fiscal 2012 and 2013 depending on the availability of funds.
As part of our ongoing product development and menu reengineering in fiscal 2012, we plan to modify all of our packaging, print advertising and point of purchase graphics with a new
theme that is consistent with the exterior reimaging.
We entered into a purchase and sale agreement with an unrelated third party effective as of October 11, 2011 for the sale of one company-owned restaurant in Littleton, Colorado. We
anticipate the sale to close prior to December 31, 2011 with estimated net proceeds of $310,000 which would result in a nominal gain on the sale.
As previously disclosed in the Company's current report on Form 8-K filed December 9, 2011, we received notice from Wells Fargo Bank, N.A. (the "Bank") that the Company is
currently not in compliance with certain covenants under the Amended and Restated Credit Agreement dated December 10, 2010 (the "Credit Agreement"), including covenants requiring
that the Company's tangible net worth not be less than $2,500,000 at any time and that the Company deliver certain landlord's disclaimer and consent documents to the Bank. As
previously disclosed in the Company's current report on Form 8-K filed December 27, 2011 we entered into a First Amendment to the Amended Credit Agreement and Waiver of
Defaults and a Second Amended and Restated Term Note with Wells Fargo Bank (together, the "Amendments") that waived the current covenant defaults and modified the loan
covenants and note terms. The Amendments are conditioned upon the closing of the sale of the Littleton restaurant described above and provide for a prepayment of $100,000 in
principal from the proceeds from the sale of the Littleton, Colorado restaurant, the release of collateral associated with that restaurant, the waiver of certain other collateral requirements,
and a revision to the amortization and maturity date of the remaining loan balance as of January 2, 2012 of $349,000 to December 31, 2013. There was no change to the interest rate
3
of the loan. As of January 2, 2012, we will have reduced the principal balance of the Wells Fargo loan from $722,000 at the end of fiscal 2010 to $349,000 and reduced other long term
debt by $843,000 during that same period.
On December 31, 2010, following approval by the Company's stockholders at a special meeting on December 13, 2010, the Company effected a one-for-three reverse stock split of its
issued and outstanding Common Stock. All references to numbers of shares and share prices in the following paragraphs and throughout Items 1 and 2 are stated at post-reverse split
amounts.
In fiscal 2011, we closed two Company-operated restaurants and a franchisee closed one restaurant. We continue to evaluate the near term realizable asset value of each restaurant
compared to its longer term cash flow value and we may choose to sell, sublease or close a limited number of additional lower performing restaurants in fiscal 2012 as we position the
company for growth in new store development and reposition our stores away from trade areas that may have shifted demographically or from our current concept direction. We will
require additional capital sources to develop additional company-owned restaurants.
See Financing Activities under the Liquidity and Capital Resources section Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
below for further details of the transactions described above.
Concept and Business Strategy : We operate with two different formats that have evolved over the course of our history: a smaller, 880 to 1000 square foot building without indoor
seating that is focused on drive thru service and limited walk up service; and a 2,400 square foot, 70 seat dining room format that has been the model for the last thirteen restaurants
developed in Colorado. We have further refined the prototype design to reduce development costs and improve the return on investment model for future company-owned and franchised
restaurant expansion with a 1,900 to 2,000 square foot, 40 seat dining room design that will carry forward all of the core design elements of our prior prototype design.
We operate at the upper end of the quick service restaurant (QSR) category in terms of the quality of our ingredients and pricing strategy, without a $1 menu or deep discounting.
Consumer research has shown us that the customer feels a strong connection to Good Times and feels better about choosing Good Times over the larger hamburger QSR brands due to the
quality of our ingredients and brand personality. As a result we have developed a communications umbrella called "Happiness Made to Order" with three primary brand pillars of
Innovation, Quality and Connectedness. All of our product initiatives are designed to support a brand position that adds differentiation to our concept within the landscape of quick
service restaurant competitors, particularly in the hamburger segment. Within Innovation we strive to create products and flavor profiles available only at Good Times that challenge
QSR norms. Within Quality, our products are supported by Fresh, All Natural, Handcrafted attributes using high quality, regional ingredients. Within Connectedness, we strive to create
connections with our customers based on the Colorado lifestyle, local brand partners and community support and involvement,
We continued making significant product introductions and modifications in fiscal 2011 with a combination of limited time offer and permanent product introductions including Sweet
Potato Fries, Hand Spun Custard Flavors, Summer and Holiday Shakes, Santiago's Hatch Valley New Mexico Green Chile, Fresh Grilled, Honey Cured Bacon Burgers and Loaded
Fries. We engaged a third party research company to help us evaluate over twenty new menu items to find the most compelling incremental sales opportunities to drive frequency
amongst our current customer base and new occasions with infrequent or lapsed customers while simplifying our current offerings that are duplicative to the customer. As a result we
have three new areas of menu focus for fiscal 2012, one of which is an entirely new category and two of which are a restructuring of current offerings and product design. We expect to
broaden our customer base, decrease food costs as a percentage of sales and increase transactions. Our goal is to decrease our food cost margin by 2% to 3% by the end of fiscal 2012
from current levels through menu engineering and new product introductions.
While our primary value proposition for the consumer is derived from the quality of ingredients and taste of our products, the current competitive and consumer spending environment
continues to redefine value expectations within the quick service restaurant segment and a larger number of transactions are being driven by the availability of menu items at lower price
points. Our lower priced options are consistent with our brand strategy to offer fresh, real, handcrafted food with unique flavor profiles in our core menu categories of burgers, chicken,
fries, frozen custard and fountain products and we continue to evolve our overall menu price ranges available for our customers, including a lower tier option, a mid-tier everyday option
and a premium tier for specialty products.
We will continue to focus on elevating the attributes of our menu items that we believe give us a unique position in hamburger quick service restaurants - Fresh All Natural Angus beef
that is free from hormones, antibiotics and animal
4
byproducts in the feed; Fresh Frozen Custard made fresh every few hours in every restaurant; Fresh Grilled Honey Cured Bacon; Fresh Squeezed Lemonade; Fresh Cut Fries; 100%
Breast of Chicken; Freshly Sliced Produce and toppings such as real guacamole and sautéed mushrooms. We are working on the preparation system and packaging design for our
burgers with the goal of achieving a more hot-off-the-grill, cooked to order flavor that is more common in fast casual and casual theme concepts than in quick service restaurants.
Our core strategies have not changed and we continue to focus on the following initiatives to maintain positive sales growth and improve our profitability:
Focus on our most important drivers of success:
o Values. We strive to build and develop behaviors and expectations around what we value most throughout the company: integrity, continued improvement, customer loyalty
and respect for each other.
o People. We seek to hire high quality people throughout and provide them with comprehensive training programs to ensure that we deliver consistently superior products and
service. We offer an incentive program at the restaurant level based on customer service, personal development and financial performance.
o Distinctive quality. We strive to offer unique, highly distinctive tastes with the highest quality ingredients available in the quick service restaurant category.
o Excellent systems. We strive to provide the best systems and processes in every area to free our management to focus on leading their people.
Offer high quality, unique menu items that provide exceptional value. Our restaurants feature menu items that are unique in the quick service segment, and flavor profiles that are
associated more with fast casual and casual theme restaurants than with fast food. Each menu category has signature recipes with fun, irreverent names that build Good Times' non-
traditional personality such as Wild Fries with Wild Dippin Sauce, Big Daddy Bacon Cheeseburger, Mighty Deluxe, Burnin' Buffalo Chicken and and Strawberry Cheesecake Addiction
Spoonbender. We continue to make relevant changes to our entire menu to leverage our heritage of quality products and to position the Good Times brand for a more unique and highly
differentiated consumer experience.
Establish a unique brand position in quick service restaurants. We aspire to have Good Times stand for "providing food the way it used to be." Key brand support for that includes
attributes such as "Fresh", "All Natural", "Fresh Grilled", "Authentic", "Handcrafted", and "Fresh Squeezed" with a theme of fresh ingredients and made to order food.
Continually improve our fast, friendly, personal customer service under our tagline of "Happiness Made to Order". We strive to optimize and personalize the interaction between our
employees and customers, particularly at the points of order and payment, to build a reputation as having the friendliest service. We manage the face to face interaction with our
customers through extensive employee screening and hospitality training to ensure their experience is punctuated by attentive, friendly service. We have implemented an online screening
and hiring system to reduce our hourly employee turnover and hire team members that exhibit good service attitudes. Additionally, we introduced video training tools that we believe
enhance consistent execution of our quality standards. Speed of service through our drive thru lanes is important to the consumers' need for convenience, but is always secondary to
delivering the highest quality product possible. We monitor each car's service time and have developed incentive programs for management and employees to maintain our quick service
standards.
Build customer loyalty through a unique brand experience. In addition to fast friendly service and great tasting products, we strive to maintain clean, safe and appealing facilities with a
particular emphasis on well groomed landscaping, freshly painted exteriors and merchandising that highlights the unique product attributes and flavors of our products. We believe that
everything the customer sees, smells, hears and feels influences their overall impression and the reputation of Good Times and that Good Times' target customer is seeking more out of a
quick service restaurant experience.
Build awareness of the Good Times Burgers & Frozen Custard brand. We believe that Good Times has built substantial brand equity among our customers and has become known for
our quality, service and signature tastes, particularly within the hamburger category. We believe there is significant opportunity to continue to build that reputation within the hamburger
category by continuing to build a stronger overall value proposition and offer a new menu category outside of Burgers, Sides and Custard. As capital becomes available to us to build out
the Colorado market, we plan to sustain our media advertising and increase our store level communications, augmented by a new Loyalty Program and social media.
5
Continually improve our employees' knowledge and proficiency of our core processes. Our customers' experience is driven by the ability of our management and employees to
consistently execute clearly defined processes in every area of our business. We believe that our employees' abilities and attitudes are directly related to our ability to provide well
designed service, production and operating processes and effective training that allows them to continually learn, improve and succeed. We train, test, certify and re-train all employees
and management on all of our core operating and management processes to continually improve levels of proficiency.
Current Fiscal Year Initiatives :
1. Consistently Grow Same Store Sales : We will continue to focus on comparable restaurant sales driven by increases in guest counts and increases in the average guest check. Same
store sales increased 6.2% in fiscal 2011 compared to fiscal 2010 and through November, 2011 we have experienced sixteen consecutive months of same store sales increases. We hope
to increase guest counts throughout fiscal 2012 through a multi-faceted approach to continually improve the Good Times brand experience for our customers by:
• Continuing to communicate our core value proposition that is centered on the availability of high quality at several different price points across our menu.
• Shifting our marketing communications from broadcast media to more store level communications, the introduction of a new Loyalty Program and implementation of new
social media initiatives that leverage our existing customer base.
• Introducing both permanent and limited time products that are only available at Good Times.
• Improving our execution on customer service and the delivery of our brand experience through continual re-training of all of our employees on our standards and
heightened expectations.
• Continuing to reinvest in our existing facilities.
2. Reduce our Cost of Sales : In fiscal 2011 our food and packaging costs increased .6% of restaurant sales from fiscal 2010. The increase was primarily due to an increase in
commodity costs as we experienced a 5% increase in our weighted average food and packaging costs in fiscal 2011 on top of an 11% increase in fiscal 2010 due mainly to
increases in beef, bacon and dairy products. We implemented a cumulative total menu price increase of 6.2% during fiscal 2010 and 5.3% in fiscal 2011; however, commodity
costs increased more than our weighted menu price increases. We expect to make modest price increases in fiscal 2012 but anticipate larger menu reengineering within our
current menu categories and the addition of a new menu category that will reduce our overall cost of sales as a percentage of sales.
3. Improve our Income from Operations by managing the profitability of incremental sales growth : In addition to reducing our cost of sales, the highest near term return on our
capital investment and opportunity for profit improvement is from increasing sales in our existing restaurants. Historically, depending on the sales volume of each restaurant, we
have experienced a 35% to 50% profit contribution on incremental sales. By managing the profitability of compounding sales increases, we believe we can improve our Income
from Operations through the operating leverage on existing assets.
4. Pursue Strategic Alternatives : We continue to pursue possible additional strategic alternatives to enhance shareholder value and leverage the costs related to our operation as a
publicly traded entity.
Expansion strategy and site selection: Our longer term strategy of becoming a super regional brand in select contiguous markets depends on our ability to continue our same store sales
trends, on the consumer spending environment and on the availability of capital, which is currently limited. If we can effect a 2% reduction in our cost of sales and continue our same
store sales increases, our new store return on investment model is very competitive, which can lead to new company-owned and franchised development.
Any new development would involve our new prototype restaurant design on sites that are on or adjacent to big box or grocery store anchored shopping centers in high activity and
employment areas. Our site selection for new restaurants is oriented toward slightly higher income demographic areas than many of our urban locations and most of our targeted trade
areas are in relatively high growth areas of the Denver and northern Colorado markets.
We lease most of our sites. When we do purchase and develop a site, we intend to sell the developed site into the sale-leaseback market under a long term lease. Our primary site
objective is to secure a suitable site, with the decision to buy or lease as a secondary objective. Our site criteria includes a mix of substantial daily traffic, density of at least 30,000 people
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within a three mile radius, strong daytime population and employment base, retail and entertainment traffic generators, good visibility and easy access.
Restaurant locations: We currently operate and franchise a total of forty-five Good Times restaurants, of which forty-one are in Colorado, with thirty-nine in the Denver greater
metropolitan area, one in Colorado Springs and one in Silverthorne.
Company-owned &
Co-developed
Franchised
Dual brand company-
owned
Dual brand franchised
Total
24
15
1
5
45
December:
Company-owned restaurants
Co-developed
Franchise operated restaurants
Total restaurants:
Denver,
CO
Greater
Metro
23
13
1
2
39
2010
20
7
22
49
Colorado,
Other
Idaho Wyoming
North
Dakota
1
1
2
1
1
2011
18
7
20
45
2
2
1
1
In December 2010 a franchisee operating a Good Times restaurant in Grand Junction, Colorado terminated their franchise agreement and closed the restaurant. In February 2011 we sold
one dual branded company-owned restaurant in Colorado Springs, Colorado, and in May 2011 we sold one company-owned Good Times restaurant in Colorado Springs, Colorado. We
entered into a purchase and sale agreement with an unrelated third party effective as of October 11, 2011 for the sale of one company-owned restaurant in Littleton, Colorado. We
anticipate the sale to close prior to December 31, 2011 with estimated net proceeds of $310,000. We anticipate that franchisees may close up to two low volume franchised restaurants in
fiscal 2012 and we may close one or two lower volume company operated restaurants, which would result in improved overall operating margins and more efficient allocation of
overhead resources.
Menu: The menu of a Good Times Burgers & Frozen Custard restaurant is limited to hamburgers, cheeseburgers, chicken sandwiches, french fries, onion rings, fresh squeezed and
frozen lemonades, soft drinks and frozen custard products. Each menu item is made to order at the time the customer places the order and is not pre-prepared.
The hamburger patty is made with Meyer All Natural, All Angus beef, served on a 4" bun. Hamburgers and cheeseburgers are garnished with fresh iceberg lettuce, fresh sliced sweet red
onions, mayonnaise, guacamole, fresh grilled honey cured bacon, and proprietary sauces. The chicken products include a spiced, battered whole muscle breast patty and a grilled
seasoned breast patty, both served with mayonnaise, lettuce and tomatoes, and Chicken Dunkers, whole breast meat breaded Tenders. Signature chicken products include the Burnin'
Buffalo, Guacamole Bacon Chicken, and 100% whole muscle breast meat Dunkers. Equipment has been automated and equipped with compensating computers to deliver a consistent
product and minimize variability in operating systems.
All natural Angus beef is raised without the use of any hormones, antibiotics or animal byproducts that are normally used in the open beef market. We believe that all natural beef
delivers a better tasting product and, because of the rigorous protocols and testing that are a part of the Meyer All Natural Beef processes, also may minimize the risk of any food-borne
bacteria-related illnesses.
Fresh frozen custard is a premium ice cream (requiring in excess of 10% butterfat content and .4% egg yolks) with a proprietary vanilla blend that is prepared from highly specialized
equipment that minimizes the amount of air that is added to the mix and that creates smaller ice crystals than other frozen dairy desserts. The custard is scooped similarly to hard-packed
ice cream but is served at a slightly warmer temperature. The resulting product is smoother, creamier and thicker than typical soft serve or hard-packed ice cream products. Good Times
serves the frozen custard as vanilla and a flavor of the day in cups and cones, specialty sundaes and "Spoonbenders", a mix of custard and toppings, and we anticipate it will continue to
be a significant percentage of sales as we continue to develop and promote custard products.
Marketing & Advertising: Our marketing strategy focuses on: 1) driving comparable restaurant sales through attracting new customers and increasing the frequency of visits by current
customers; 2) communicating specific product news and attributes to build strong points of difference from competitors; and 3) communicating a unique, strong and consistent brand.
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Media is an important component of building Good Times' brand awareness and distinctiveness. We spent most of our advertising dollars on radio media during fiscal 2011. The
Colorado market is an expensive media market, so most of our advertising placement is not in prime time but in early and late fringe, prime access and late news time slots. As we
continue to develop more and more distinctiveness to Good Times' brand and increase penetration of the Colorado market, we anticipate we will continue to use media advertising to
increase overall awareness. However, during fiscal 2011, we reduced our overall advertising expenditures and focused more of our marketing funds on store level and trade area level
communication and activities. During fiscal 2012 we will implement a Loyalty Program supplemented by our first social media presence that affords us a higher level of engagement with
current customers and those that have chosen Good Times as their hamburger QSR.
Another important component of our marketing efforts is point-of-sale and on-site merchandising. We rotate new four color product point-of-purchase displays every other month and
support new product introductions with extensive merchandising. Our restaurants with dining rooms have back-lit and front-lit product displays and product messaging throughout.
Menu boards are kept fresh with new food photography and graphics several times throughout the year.
We plan to continue to be active in digital media in order to create more customer engagement with the Good Times brand. We anticipate leveraging our customer email database and
website to create cost effective channels to target existing customers and increase their frequency.
Operations:
Restaurant Management: We have developed Operating Partners in several of our restaurants as we are able to recruit qualified candidates. We believe that this is a distinct
competitive advantage that provides a higher level of service, quality control and stability over time. The objective of the Operating Partner Program is to have each partner develop a
relationship with the employees, the customers and the community at their restaurant and develop an ownership mentality with commensurate rewards as sales increase over a longer
period of time. The program allows an Operating Partner to earn 25% of a restaurant's improvement in cash flow over an established baseline. Each Good Times restaurant employs an
operating partner or a general manager, one to two assistant managers and approximately 15 to 25 employees, most of whom work part-time during three shifts. An eight to ten week
training program is utilized to train restaurant managers on all phases of the operation. Ongoing training is provided as necessary. We believe that incentive compensation of our
restaurant managers is essential to the success of our business. Accordingly, in addition to a salary, managerial employees may be paid a bonus based upon proficiency in meeting
financial, customer service and quality performance objectives tied to a monthly scorecard of measures. Due to our decline in sales in 2009 and 2010, we shifted most of our Operating
Partners into a more traditional bonus plan based on their performance against the monthly scorecard metrics.
Operational Systems and Processes: We believe that we have some of the best operating systems and processes in the industry. Detailed processes have been developed for hourly,
daily, weekly and monthly responsibilities that drive consistency across our system of restaurants and performance against our standards within different day parts. We utilize a labor
program to determine optimal staffing needs of each restaurant based on its actual customer flow and demand. We also employ several additional operational tools to continuously
monitor and improve speed of service, food waste, food quality, sanitation, financial management and employee development. We are moving toward automating and computerizing as
many of these systems as possible into an integrated, digital management system.
The order system at each Good Times restaurant is equipped with an internal timing device that displays and records the time each order takes to prepare and deliver. The total
transaction time for the delivery of food at the window is approximately 30 to 60 seconds during peak times.
We use several sources of customer feedback to evaluate each restaurant's service and quality performance, including an extensive secret shopper program, customer comment phone line,
telephone surveys and website comments. Additionally, management uses both its own primary consumer research for product development and to determine customer usage and attitude
patterns as well as third party market research that evaluates Good Times' performance ratings on several different operating attributes against key competitors.
Training: We strive to maintain quality and consistency in each of our restaurants through the careful training and supervision of all our employees at all levels and the establishment of,
and adherence to, high standards relating to personnel performance, food and beverage preparation and maintenance of our restaurants. Each manager must complete an eight to ten week
training program, be certified on several core processes and is then closely supervised to show both comprehension and capability before they are allowed to manage autonomously. All
of our training and development is based upon a "train, test, certify, re-train" cycle around standards and operating processes at all levels. We conduct a semi-
8
annual performance review with each manager to discuss prior performance and future performance goals. We have a defined weekly and monthly goal setting process around future
performance goals. We have a defined weekly and monthly goal setting process around service, employee development, financial management and store maintenance goals for every
restaurant. Additionally we have a library of video training tools to drive training efficiencies and consistency.
Recruiting and Retention: We seek to hire experienced restaurant managers and Operating Partners. We support employees by offering competitive wages and benefits, including a
401(k) plan, medical insurance, stock options for regional managers and incentive plans at every level that are tied to performance against key goals and objectives. We motivate and
prepare our employees by providing them with opportunities for increased responsibilities and advancement. We also provide various other incentives, including vacations, car
allowances, monthly performance bonuses and monetary rewards for managers who develop future managers for our restaurants. We have implemented an online screening and hiring
tool that has proven to reduce hourly employee turnover by more than 50%.
Franchising: Good Times has prepared prototype area rights and franchise agreements, a Uniform Franchise Disclosure Document ("UFDD") and advertising material to be utilized in
soliciting prospective franchisees. We seek to attract franchisees that are experienced restaurant operators, well capitalized and have demonstrated the ability to develop one to five
restaurants. We review sites selected for franchises and monitor performance of franchise units. We are not currently soliciting new franchisees and will not do so until capital becomes
more available and we have regained greater same store sales momentum.
We estimate that it will cost a franchisee on average approximately $750,000 to $1,100,000 to open a restaurant with dining room seating, including pre-opening costs and working
capital, assuming the land is leased. A franchisee typically will pay a royalty of 4% of net sales, an advertising materials fee of at least 1.5% of net sales, plus participation in regional
advertising up to an additional 4% of net sales, or a higher amount approved by the advertising cooperative, and initial development and franchise fees totaling $25,000 per restaurant.
Among the services and materials which we provide to franchisees are site selection assistance, plans and specifications for construction of the Good Times Burgers and Frozen Custard
restaurants, an operating manual which includes product specifications and quality control procedures, training, on-site opening supervision and advice from time to time relating to
operation of the franchised restaurants.
After a franchise agreement is signed, we actively work with and monitor our franchisees to ensure successful franchise operations as well as compliance with Good Times systems and
procedures. During the development phase, we assist in the selection of sites and the development of prototype and building plans, including all required changes by local municipalities
and developers. We provide an opening team of trainers to assist in the opening of the restaurant and training of the employees. We advise the franchisee on menu, management training,
marketing, and employee development. On an ongoing basis we conduct standards reviews of all franchise restaurants in key areas including product quality, service standards, restaurant
cleanliness and sanitation, food safety and people development.
We have entered into eleven franchise agreements in the greater Denver metropolitan area. Thirteen franchise restaurants and seven joint-venture restaurants are operating in the Denver
metropolitan area media market. Good Times franchise restaurants also operate in Colorado Springs and in Boise, Idaho. The Boise Idaho franchise agreement expired in November,
2011 and we anticipate that it will not be renewed. Dual branded franchised restaurants operate in Gillette and Sheridan, Wyoming, Ft. Collins and Windsor, Colorado, and Bismarck,
North Dakota.
Management Information Systems: Financial and management control is maintained through the use of automated data processing and centralized accounting and management
information systems that we provide. Sales, labor and cash data is collected daily via a restaurant back office system which gathers data from the restaurant point-of-sale system.
Management receives daily, weekly and monthly reports identifying food, labor and operating expenses and other significant indicators of restaurant performance. We believe that these
reporting systems are sophisticated and enhance our ability to control and manage operations
Food Preparation, Quality Control & Purchasing: We believe that we have some of the highest food quality standards in the quick service restaurant industry. Our systems are
designed to protect our food supply throughout the preparation process. We inspect specific qualified manufacturers and work together with those manufacturers to provide specifications
and quality controls. Our operations management teams are trained in a comprehensive safety and sanitation course provided by the National Restaurant Association. Minimum cook
temperature requirements and line checks throughout the day ensure the safety and quality of both burgers and other items we use in our restaurants.
We currently purchase 100% of our restaurant food and paper supplies from Yancey's Food Service. We do not believe that the current reliance on this sole vendor will have any long-
term material adverse effect since we believe that there are a
9
sufficient number of other suppliers from which food and paper supplies could be purchased. We do not anticipate any difficulty in continuing to obtain an adequate quantity of food and
paper supplies of acceptable quality and at acceptable prices.
Employees: At December 15, 2011, we had approximately 411 employees of which 348 are part time hourly employees and 63 are salaried employees working full time. We consider
our employee relations to be good. None of our employees are covered by a collective bargaining agreement.
Competition: The restaurant industry, including the fast food segment, is highly competitive. Good Times competes with a large number of other hamburger-oriented fast food
restaurants in the areas in which it operates. Many of these restaurants are owned and operated by regional and national restaurant chains, many of which have greater financial resources
and experience than we do. Restaurant companies that currently compete with Good Times in the Denver market include McDonald's, Burger King, Wendy's, Carl's Jr., Sonic and Jack in
the Box. Double drive-through restaurant chains such as Rally's Hamburgers and Checker's Drive-In Restaurants, which currently operate a total of over 800 double drive-through
restaurants in various markets in the United States, are not currently operating in Colorado. Culver's and Freddy's are the only significant competitors offering frozen custard as a primary
menu item operating in the Denver and Colorado Springs markets and both have a significant presence in Midwestern markets that may be targeted for expansion. Additional "fast
casual" hamburger restaurants are being developed in the Colorado market, such as Smashburger and Five Guys; however, they do not have drive-through service and generate an average
per person check that is approximately 50% higher than Good Times' average check.
Our management believes that we may have a competitive advantage in terms of quality of product compared to traditional fast food hamburger chains. Early development of our double
drive-through concept in Colorado has given us an advantage over other double drive-through chains that may seek to expand into Colorado because of our brand awareness and present
restaurant locations. Nevertheless, we may be at a competitive disadvantage to other restaurant chains with greater name recognition and marketing capability. Furthermore, most of our
competitors in the fast-food business operate more restaurants, have been established longer, and have greater financial resources and name recognition than we do. There is also active
competition for management personnel, as well as for attractive commercial real estate sites suitable for restaurants.
Trademarks: Good Times has registered its mark "Good Times! Drive Thru Burgers"(SM) with the State of Colorado. We have also registered our mark "Good Times Burgers &
Frozen Custard" federally and with the State of Colorado.
Good Times received approval of its federal registration of "Good Times" in 2003. In addition we own trademarks or service marks that have been registered, or for which applications
are pending, with the United States Patent and Trademark Office including but not limited to: "Mighty Deluxe", "Wild Fries", "Spoonbender", "Chicken Dunkers", "Big Daddy Bacon
Cheeseburger", and "Wild Dippin' Sauce". Our trademarks expire between 2012 and 2015.
Government Regulation: Each Good Times restaurant is subject to the regulations of various health, sanitation, safety and fire agencies in the jurisdiction in which the restaurant is
located. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a new Good Times restaurant. Federal and state environmental
regulations have not had a material effect on our operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental
factors could delay or prevent development of new restaurants in particular locations. We are subject to the Fair Labor Standards Act, which governs such matters as minimum wages,
overtime, and other working conditions. In addition, we are subject to the Americans With Disabilities Act, which requires restaurants and other facilities open to the public to provide
for access and use of facilities by the handicapped. Management believes that we are in compliance with the Americans With Disabilities Act.
We are also subject to federal and state laws regulating franchise operations, which vary from registration and disclosure requirements in the offer and sale of franchises to the application
of statutory standards regulating franchise relationships.
Available Information: Our Internet website address is www.goodtimesburgers.com. We make available free of charge through our website's investor relations information section our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed with or furnished to the SEC under applicable
securities laws as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC. Our website information is not part of or incorporated by reference
into this Annual Report on Form 10-K.
10
Special Note About Forward-Looking Statements: From time to time the Company makes oral and written statements that reflect the Company's current expectations regarding future
results of operations, economic performance, financial condition and achievements of the Company. A forward-looking statement is neither a prediction nor a guarantee of future events.
We try, whenever possible, to identify these forward-looking statements by using words such as "anticipate," "assume," "believe," "estimate," "expect," "intend," "plan," "project," "may,"
"will," "would," and similar expressions Certain forward-looking statements are included in this Form 10-K, principally in the sections captioned "Description of Business," and
"Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements are related to, among other things:
business objectives and strategic plans;
operating strategies;
our ability to open and operate additional restaurants profitably and the timing of such openings;
restaurant and franchise acquisitions;
anticipated price increases;
expected future revenues and earnings, comparable and non-comparable restaurant sales, results of operations, and future restaurant growth (both company-owned and franchised);
estimated costs of opening and operating new restaurants, including general and administrative, marketing, franchise development and restaurant operating costs;
anticipated selling, general and administrative expenses and restaurant operating costs, including commodity prices, labor and energy costs;
future capital expenditures;
o our expectation that we will have adequate cash from operations and credit facility borrowings to meet all future debt service, capital expenditure and working capital
requirements in fiscal year 2012;
o the sufficiency of the supply of commodities and labor pool to carry on our business;
o success of advertising and marketing activities;
o the absence of any material adverse impact arising out of any current litigation in which we are involved;
o impact of the adoption of new accounting standards and our financial and accounting systems and analysis programs;
o expectations regarding competition and our competitive advantages;
o impact of our trademarks, service marks, and other proprietary rights; and
o effectiveness of our internal control over financial reporting.
Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to
known and unknown risks and uncertainties.
In some cases, information regarding certain important factors that could cause actual results to differ materially from any forward-looking statements appears together with such
statement. In addition, the factors described under Critical Accounting Policies and Estimates in Part II, Item 7, and Risk Factors in Part I, Item 1A, as well as other possible factors not
listed, could cause actual results to differ materially from those expressed in forward-looking statements, including, without limitation, the following: concentration of restaurants in
certain markets and lack of market awareness in new markets; changes in disposable income; consumer spending trends and habits; increased competition in the quick service restaurant
market; costs and availability of food and beverage inventory; our ability to attract qualified managers, employees, and franchisees; changes in the availability of capital or credit facility
borrowings; costs and other effects of legal claims by employees, franchisees, customers, vendors, stockholders and others, including settlement of those claims; effectiveness of
management strategies and decisions; weather conditions and related events in regions where our restaurants are operated; and changes in accounting standards policies and practices or
related interpretations by auditors or regulatory entities.
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
11
ITEM 1A. RISK FACTORS
You should consider carefully the following risk factors before making an investment decision with respect to Good Times Restaurants' securities. You are cautioned that the risk factors
discussed below are not exhaustive.
We have accumulated losses. We have incurred losses in every fiscal year since inception except 1999, 2002, 2006 and 2007. As of September 30, 2011 we had an accumulated deficit
of $17,680,000. We cannot assure you that we will not have a loss for the current fiscal year ending September 30, 2012. As of September 30, 2011, we had a working capital deficit of
$488,000.
We must sustain same store sales increases. We must sustain same store sales increases in existing restaurants to sustain profitability and we experienced declines in our same store
sales in fiscal 2008, fiscal 2009 and the first ten months of fiscal 2010. Sales increases will depend in part on the success of our advertising and promotion of new and existing menu
items and consumer acceptance. We cannot assure that our advertising and promotional efforts will in fact be successful.
New restaurants, when and if opened, may not be profitable, if at all, for several months. We anticipate that our new restaurants, when and if opened, will generally take several
months to reach normalized operating levels due to inefficiencies typically associated with new restaurants, including lack of market awareness, the need to hire and train a sufficient
number of employees, operating costs, which are often materially greater during the first several months of operation than thereafter, pre-opening costs and other factors. In addition,
restaurants opened in new markets may open at lower average weekly sales volumes than restaurants opened in existing markets, and may have higher restaurant-level operating expense
ratios than in existing markets. Sales at restaurants opened in new markets may take longer to reach average annual company-owned restaurant sales, if at all, thereby affecting the
profitability of these restaurants.
Our operations are susceptible to the cost of and changes in food availability which could adversely affect our operating results. Our profitability depends in part on our ability to
anticipate and react to changes in food costs. Various factors beyond our control, including adverse weather conditions, governmental regulation, production, availability, recalls of food
products and seasonality may affect our food costs or cause a disruption in our supply chain. We enter into annual contracts with our chicken and other miscellaneous suppliers. Our
contracts for chicken are fixed price contracts. Our contracts for beef are generally based on current market prices plus a processing fee. Changes in the price or availability of chicken or
beef or other commodities could materially adversely affect our profitability. We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our
purchasing practices and menu prices, and a failure to do so could adversely affect our operating results. In addition, because we provide a "value-priced" product, we may not be able to
pass along price increases to our guests.
The macroeconomic recession could affect our operating results. The current state of the economy and decreased consumer spending may adversely affect our sales in the future. A
proliferation of heavy discounting by our major competitors may also negatively affect our sales and operating results.
Price increases may impact guest visits. We may make price increases on selected menu items in order to offset increased operating expenses we believe will be recurring. Although
we have not experienced significant consumer resistance to our past price increases, we cannot provide assurance that this or other future price increases will not deter guests from
visiting our restaurants or affect their purchasing decisions.
The hamburger restaurant market is highly competitive. The hamburger restaurant market is highly competitive. Our competitors include many recognized national and regional fast-
food hamburger restaurant chains such as McDonald's, Burger King, Wendy's, Carl's Jr., Sonic, Jack in the Box and Culver's. We also compete with small regional and local hamburger
and other fast-food restaurants, many of which feature drive-through service. Most of our competitors have greater financial resources, marketing programs and name recognition. All of
the major hamburger chains have offered selected food items and combination meals at discounted prices. Discounting by competitors may adversely affect the revenues and profitability
of our restaurants.
Sites may be difficult to acquire. Location of our restaurants in high-traffic and readily accessible areas is an important factor for our success. Drive-through restaurants require sites
with specific characteristics and there are a limited number of suitable sites available in our geographic markets. Since suitable locations are in great demand, in the future we may not be
able to obtain optimal sites at a reasonable cost. In addition, we cannot assure you that the sites we do obtain will be successful.
12
We will require additional financing. In order to fully develop the Denver and Colorado Springs/Pueblo markets and to expand into markets outside of Colorado, we will require
additional financing. We cannot assure you that we will be able to access sufficient capital to adequately finance our operations and our planned developments or that additional
financing will be available on reasonable terms. The current economic environment and status of the capital markets may adversely affect our ability to acquire additional debt or equity
financing for working capital, new restaurant development, or refinancing of existing funding agreements.
If our franchisees cannot develop or finance new restaurants, build them on suitable sites or open them on schedule, our growth and success may be impeded. Under our
current form of area development agreement, some franchisees must develop a predetermined number of restaurants according to a schedule that lasts for the term of their development
agreement. Franchisees may not have access to the financial or management resources that they need to open the restaurants required by their development schedules, or may be unable
to find suitable sites on which to develop them. Franchisees may not be able to negotiate acceptable lease or purchase terms for the sites, obtain the necessary permits and government
approvals or meet construction schedules. From time to time in the past, we have agreed to extend or modify development schedules and we may do so in the future. Any of these
problems could slow our growth and reduce our franchise revenues.
Additionally, our franchisees depend upon financing from banks and other financial institutions in order to construct and open new restaurants. Difficulty in obtaining adequate financing
adversely affects the number and rate of new restaurant openings by our franchisees and adversely affect our future franchise revenues.
Our franchisees could take actions that could harm our business. Franchisees are independent contractors and are not our employees. We provide training and support to
franchisees; however, franchisees operate their restaurants as independent businesses. Consequently, the quality of franchised restaurant operations may be diminished by any number of
factors beyond our control. Moreover, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements, or may not hire and train
qualified managers and other restaurant personnel. Our image and reputation, and the image and reputation of other franchisees, may suffer materially, and system-wide sales could
significantly decline, if our franchisees do not operate successfully.
We depend on key management employees. We believe our current operations and future success depend largely on the continued services of our management employees, in particular
Boyd E. Hoback, our president and chief executive officer, and Scott Lefever, our vice president of operations. Although we have entered into an employment agreement with Mr.
Hoback, he may voluntarily terminate his employment with us at any time. In addition, we do not maintain key-person insurance on Messrs. Hoback's or Lefever's life. The loss of
Messrs. Hoback's or Lefever's services, or other key management personnel, could have a material adverse effect on our financial condition and results of operations.
Labor shortages could slow our growth or harm our business. Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified, high-energy
employees. Qualified individuals needed to fill these positions are in short supply in some areas. The inability to recruit and retain these individuals may delay the planned openings of
new restaurants or result in high employee turnover in existing restaurants, which could harm our business. Additionally, competition for qualified employees could require us to pay
higher wages to attract sufficient employees, which could result in higher labor costs. Most of our employees are paid on an hourly basis. The employees are paid in accordance with
applicable minimum wage regulations. Accordingly, any increase in the minimum wage, whether state or federal, could have a material adverse impact on our business.
Nevada law and our articles of incorporation and bylaws have provisions that discourage corporate takeovers and could prevent stockholders from realizing a premium on
their investment. We are subject to anti-takeover laws for Nevada corporations. These anti-takeover laws prevent a Nevada corporation from engaging in a business combination with
any stockholder, including all affiliates and associates of the stockholder, who owns 10% or more of the corporation's outstanding voting stock, for three years following the date that the
stockholder acquired 10% or more of the corporation's voting stock, unless specified conditions are met.
Our articles of incorporation and our bylaws contain a number of provisions that may deter or impede takeovers or changes of control or management. These provisions:
authorize our Board of Directors to establish one or more series of preferred stock, the terms of which can be determined by the Board of Directors at the time of issuance;
do not allow for cumulative voting in the election of directors unless required by applicable law. Under cumulative voting, a minority stockholder holding a sufficient percentage of a
class of shares may be able to ensure the election of one or more directors;
13
• state that special meetings of our stockholders may be called only by the chairman of the board, the president or any two directors, and must be called by the president upon the
written request of the holders of ten percent of the outstanding shares of capital stock entitled to vote at such special meeting; and
provide that the authorized number of directors is no more than seven, as determined by our Board of Directors.
These provisions, alone or in combination with each other, may discourage transactions involving actual or potential changes of control, including transactions that otherwise could
involve payment of a premium over prevailing market prices to stockholders for their common stock.
We have a controlling stockholder. Small Island Investments Limited ("SII") beneficially owns approximately 50.7% of our outstanding common stock. In addition, SII has the right,
for so long as it owns more than 50% of our outstanding common stock, to designate a majority of our Board of Directors. SII therefore has the ability to alter the strategic direction
and/or capital structure of the Company.
Future changes in financial accounting standards may cause adverse unexpected operating results and affect our reported results of operations. Changes in accounting
standards can have a significant effect on our reported results and may affect our reporting of transactions completed before the change is effective. As an example, in 2006, we adopted
the change that requires us to record compensation expense in the statement of operations for employee stock options using the fair value method. See Note 1 to our Consolidated
Financial Statements for further discussion. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing rules or
differing interpretations with respect to our current practices may adversely affect our reported financial results.
Our NASDAQ Listing Is Important. Our Common Stock is currently listed for trading on the NASDAQ Capital Market. The NASDAQ maintenance rules require, among other things,
that our common stock price remains above $1.00 per share and that we have minimum stockholders' equity of $2.5 million. During fiscal 2010, the Company received notices of non-
compliance with both the minimum bid price and minimum stockholders' equity continued listing requirements. The completion of the SII Investment Transaction has helped the
Company to regain compliance with the minimum stockholders' equity requirement and a one-for-three reverse stock split that took effect on December 31, 2010, allowed us to regain
compliance with the minimum bid price requirement. If we do not complete another equity transaction, we anticipate that we will again fall below the minimum stockholders' equity
requirement of $2.5 million in fiscal 2012.
We are subject to extensive government regulation that may adversely hinder or impact our ability to govern various aspects of our business including our ability to expand
and develop our restaurants. The restaurant industry is subject to various federal, state and local government regulations, including those relating to the sale of food. While in the past
we have been able to obtain and maintain the necessary governmental licenses, permits and approvals, our failure to maintain these licenses, permits and approvals, including food
licenses, could adversely affect our operating results. Difficulties or failures in obtaining the required licenses and approvals could delay or result in our decision to cancel the opening of
new restaurants. Local authorities may suspend or deny renewal of our food licenses if they determine that our conduct does not meet applicable standards or if there are changes in
regulations.
Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws govern minimum wage requirements, such as those to be imposed
by recently enacted legislation in Colorado, overtime pay, meal and rest breaks, unemployment tax rates, workers' compensation rates, citizenship or residency requirements, child labor
regulations and sales taxes. Additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits may increase our operating
costs.
The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be
accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for, disabled persons.
We are also subject to federal and state laws that regulate the offer and sale of franchises and aspects of the licensor-licensee relationship. Many state franchise laws impose restrictions
on the franchise agreement, including limitations on non-competition provisions and the termination or non-renewal of a franchise. Some states require that franchise materials be
registered before franchises can be offered or sold in the state.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses. Keeping abreast of, and in compliance with, changing
laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and The NASDAQ
14
Market rules, has required an increased amount of management attention and expense. We remain committed to maintaining high standards of corporate governance and public
disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment has resulted in and will continue to result in
increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Risks related to internal controls. Public companies in the United States are required to review their internal controls as set forth in the Sarbanes-Oxley Act of 2002. It should be
noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the
design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can
be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. If the internal controls put in place by us are not
adequate or in conformity with the requirements of the Sarbanes-Oxley Act of 2002, and the rules and regulations promulgated by the Securities and Exchange Commission, we may be
forced to restate our financial statements and take other actions which will take significant financial and managerial resources, as well as be subject to fines and other government
enforcement actions.
Health concerns relating to the consumption of beef, chicken or other food products could affect consumer preferences and could negatively impact our results of operations.
Like other restaurant chains, consumer preferences could be affected by health concerns about the avian influenza, also known as bird flu, or the consumption of beef, the key ingredient
in many of our menu items, or negative publicity concerning food quality, illness and injury generally, such as negative publicity concerning E. coli, "mad cow" or "foot-and-mouth"
disease, publication of government or industry findings concerning food products served by us, or other health concerns or operating issues stemming from one restaurant or a limited
number of restaurants. This negative publicity may adversely affect demand for our food and could result in a decrease in guest traffic to our restaurants. If we react to the negative
publicity by changing our concept or our menu we may lose guests who do not prefer the new concept or menu, and may not be able to attract a sufficient new guest base to produce the
revenue needed to make our restaurants profitable. In addition, we may have different or additional competitors for our intended guests as a result of a concept change and may not be
able to compete successfully against those competitors. A decrease in guest traffic to our restaurants as a result of these health concerns or negative publicity or as a result of a change in
our menu or concept could materially harm our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We currently lease approximately 3,700 square feet of space for our executive offices in Golden, Colorado for approximately $55,000 per year under a lease agreement which expired in
September 2009. We are currently leasing the space on a month to month basis. The space is leased from The Bailey Company, a significant stockholder in the Company, at their
corporate headquarters.
As of December 15, 2011, Good Times has an ownership interest in twenty-five Good Times units, all of which are located in Colorado. Seven of these restaurants are held in a joint
venture limited partnership of which Good Times is the general partner. Good Times has a 50% interest in six of the partnership restaurants and a 78% interest in one restaurant. In June
2010 we sold our 51% interest in one restaurant that was held in a joint venture limited partnership to our limited partner, and the restaurant is now operated under a franchise agreement.
There are eighteen Good Times units that are wholly owned by Good Times.
Most of our existing Good Times restaurants are a combination of free-standing structures containing approximately 880 to 1,000 square feet for the double drive thru format and
approximately 2,400 square feet for our prototype building with a 70 seat dining room. In addition, we have several restaurants that are conversions from other concepts in various sizes
ranging from 1,700 square feet to 3,500 square feet. The buildings are situated on lots of approximately 18,000 to 50,000 square feet. Certain restaurants serve as collateral for the
underlying debt financing arrangements as discussed in the Notes to Consolidated Financial Statements included in this report. We intend to acquire new sites both through ground leases
and purchase agreements supported by mortgage and leasehold financing arrangements and through sale-leaseback agreements.
15
All of the restaurants are regularly maintained by our repair and maintenance staff as well as by outside contractors, when necessary. We believe that all of our properties are in good
condition and that there will be a need for periodic capital expenditures to maintain the operational and aesthetic integrity of our properties for the foreseeable future, including recurring
maintenance and periodic capital improvements. All of our properties are covered up to replacement cost under our property and casualty insurance policies and in the opinion of
management are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any material legal proceedings. We are subject, from time to time, to various lawsuits in the normal course of business. These lawsuits are not expected to have a
material impact.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
PART II
Shares of our Common Stock are listed for trading on the NASDAQ Capital Market under the symbol "GTIM". The following table presents the quarterly high and low bid prices for our
Common Stock as reported by the NASDAQ Capital Market for each quarter within the last two fiscal years. The quotations reflect interdealer prices, without retail mark-ups, mark-
downs or commissions and may not represent actual transactions.
2010
HIGH LOW
QUARTER
ENDED
December 31, 2009 $1.37
$1.32
March 31, 2010
June 30, 2010
$1.25
September 30, 2010 $1.01
$1.05
$1.03
$0.92
$0.30
2011
HIGH LOW
QUARTER
ENDED
$3.00
December 31, 2010
$4.73
March 31, 2011
June 30, 2011
$2.44
September 30, 2011 $1.88
$1.56
$1.80
$1.64
$1.38
As of December 15, 2011 there were approximately 210 holders of record of Common Stock. However, management estimates that there are not fewer than 1,375 beneficial owners of
our Common Stock.
Dividend Policy : We have never paid dividends on our Common Stock and do not anticipate paying dividends in the foreseeable future. In addition, we have obtained financing under
loan agreements that restrict the payment of dividends. Our ability to pay future dividends will necessarily depend on our earnings and financial condition. However, since restaurant
development is capital intensive, we currently intend to retain any earnings for that purpose.
Recent Sales of Unregistered Securities :
SII Investment Transaction
As previously disclosed in the Company's current report on Form 8-K filed on November 3, 2010, the Company entered into a Securities Purchase Agreement (the "Purchase
Agreement") with SII on October 29, 2010, pursuant to which the Company agreed to sell, and SII agreed to purchase, 1,400,000 shares of our Common Stock (the "Shares") at a
purchase price of $1.50 per share, or an aggregate of $2,100,000. The Purchase Agreement was amended on December 13, 2010 to clarify the scope of SII's director designation rights
following the Closing. On December 13, 2010, the Company and SII completed the issuance and sale of the Shares to the SII (the "SII Investment Transaction"). The Company received
gross proceeds of $2,100,000, which were used to pay off the interim working capital loans, reduce the Company's current liabilities and provide working capital.
The Shares sold to SII were not registered under the Securities Act or state securities laws, and may not be resold in the United States in the absence of an effective registration statement
filed with the SEC or an available exemption from the applicable federal and state registration requirements. In the Purchase Agreement, SII represented to the Company that: (a) it is an
accredited investor, as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act; (b) it acquired the Shares as principal for its own account for investment
purposes only and not with a view to or for distributing or reselling the Shares or any part thereof; and (c) it is knowledgeable, sophisticated and experience in making, and
16
qualified to make, decisions with respect to investments in securities representing an investment decision similar to that involved in the purchase of the Shares. The Company has relied
on the exemption from the registration requirements of the Securities Act set forth in Section 4(2) thereof and the rules and regulations promulgated there under for the purposes of the SII
Investment Transaction.
Disclosure with Respect to the Company's Equity Compensation Plans : We maintain the 2008 Omnibus Equity Incentive Compensation Plan, pursuant to which we may grant equity
awards to eligible persons, and have outstanding stock options granted under our 2001 Good Times Restaurants Stock Option Plan, 1992 Incentive Stock Option Plan and 1992 Non-
Statutory Stock Option Plan. For additional information, see Note 13, Stockholders' Equity, in the Notes to the Consolidated Financial Statements included in this report. The following
table gives information about equity awards under our plans as of September 30, 2011.
Equity Compensation Plan Information:
(a)
(b)
(c)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
& rights
Weighted-
average exercise
price of
outstanding
options,
warrants &
rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
166,022
166,022
$6.89
$6.89
18,000
18,000
Plan category
Equity compensation
plans approved by
security holders-
options
Total
17
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data on the following pages are derived from our historical financial statements and is qualified in its entirety by such financial statements which are included in
Item 8 hereof.
The following presents certain historical financial information of the Company. This financial information includes the combined operations of the Company and its subsidiary for the
fiscal years ended September 30, 2007 to 2011. Certain prior year balances have been reclassified to conform to the current year's presentation. Such reclassifications had no effect on the
net income or loss.
Operating Data:
Restaurant sales
Franchise fees and royalties 420,000
Total Net Revenues
20,603,000
Restaurant Operating
2011
___________________________ September
30,________________________
2010
2009
2008
2007
$20,183,000 $20,390,000 $22,079,000 $25,244,000 $24,215,000
740,000
536,000
24,955,000
22,615,000
473,000
20,863,000
638,000
25,882,000
Costs:
Food and packaging
costs
Payroll and other
employee benefit costs
Occupancy and other
operating costs
New store pre-opening
costs
Depreciation and
amortization
Total restaurant
operating costs
Selling, General &
Administrative costs
Franchise costs
Loss (Gain) on
restaurant assets
Income (Loss) from
Operations
Other Income and
(expenses)
Unrealized gain (loss)
on interest rate swap
Interest income
(expense), net
Total other income
(expense)
Net Income (Loss) from
continuing operations
Income (loss) from
discontinued operations
Net Income (Loss)
Income (Expense) from
non-controlling interest
Income tax expense
Net Income (Loss)
available to Common
Shareholders
Basic and Diluted Earnings
(Loss) Per Share
Balance Sheet Data:
Working Capital (Deficit)
Total assets
Non-controlling interest in
partnerships
Long-term debt
Stockholders' equity
7,241,000
7,181,000
7,423,000
8,002,000
7,589,000
7,043,000
7,359,000
7,663,000
8,780,000
8,063,000
4,172,000
4,331,000
4,529,000
4,881,000
4,393,000
-
-
15,000
38,000
118,000
888,000
943,000
1,172,000
1,283,000
1,223,000
19,344,000
19,814,000
20,802,000
22,984,000
21,386,000
2,038,000
2,638,000
2,814,000
3,567,000
3,226,000
70,000
124,000
161,000
312,000
160,000
( 184,000 )
199,000
( 28,000 )
( 35,000 )
(17,000 )
($665,000 ) ( $1,912,000 ) ($1,134,000 )
( $946,000 )
$200,000
27,000
3,000
( 87,000 )
-
-
( 279,000 )
( 598,000 )
( 261,000 )
( 13,000 )
40,000
( 252,000 )
( 595,000 )
( 348,000 )
( 13,000 )
40,000
($917,000 ) ( $2,507,000 ) ( $1,482,000 ) ( $959,000 )
$240,000
-
22,000
( $895,000 ) ( $3,097,000 ) ( $1,700,000 ) ( $959,000 )
( 218,000 )
(590,000 )
-
$240,000
( 118,000 )
-
165,000
-
54,000
-
( 113,000 )
4,000
( 211,000 )
-
( $1,013,000 ) ( $2,932,000 ) ( $1,646,000 ) ( $1,076,000 )
$29,000
( $.42 )
( $2.26 )
( $1.26 )
( $.84 )
$.03
( $488,000 ) ( $1,869,000 ) ( $1,200,000 ) ( $2,082,000 )
6,999,000
10,254,000
11,920,000
8,318,000
$532,000
11,544,000
215,000
274,000
428,000
584,000
751,000
2,067,000
$2,520,000
3,005,000
$1,694,000
2,478,000
$4,378,000
846,000
$5,993,000
970,000
$7,084,000
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Revenues: Net revenues for fiscal 2011 decreased $260,000 (1.2%) to $20,603,000 from $20,863,000 for fiscal 2010. Same store restaurant sales increased $1,048,000 (6.2%) during
fiscal 2011. Restaurants are included in same store sales after they have been open a full fifteen months and only Good Times restaurants are included while dual branded restaurants are
excluded. Restaurant sales decreased $39,000 due to one non-traditional company-owned restaurant not included in same store sales and decreased $38,000 due to one dual branded
company-owned restaurant. Restaurant sales decreased $1,178,000 due to one co-developed restaurant sold in fiscal 2010 and two company-owned restaurants sold in fiscal 2011. Net
revenues decreased $53,000 in fiscal 2011 due to a decrease in franchise royalties and fees of $53,000.
Our first and second fiscal quarter same store restaurant sales were positively affected by better than average weather in both October and December 2010 and in March 2011. The
positive same store sales results for fiscal 2011 also reflect the continuation of the positive momentum we experienced in the last fiscal quarter of 2010 when same store sales increased
1.8%.
Our outlook for fiscal 2012 is optimistic based on the last sixteen months' of positive sales trends, however our sales trends are influenced by many factors and the macroeconomic
environment remains challenging for smaller restaurant chains. Our average transaction has increased in fiscal 2011 compared to fiscal 2010 and we are continuing to manage our
marketing communications to balance growth in customer traffic and their average expenditure.
Average restaurant sales for company-owned and co-developed restaurants (including double drive thru restaurants and restaurants with dining rooms but excluding dual brand
restaurants) for fiscal 2010 and 2011 were as follows:
Company-operated
Fiscal 2011
$779,000
Fiscal 2010
$734,000
Company operated restaurants' sales range from a low of $473,000 to a high of $1,487,000.
For factors which may affect future results of operations, please refer to the section entitled "Current Fiscal Year Initiatives" in Item 1 on page 4 of this report and a related discussion of
planned product and system changes discussed in the section entitled "Concept and Business Strategy" in Item 1 on pages 2 - 4 of this report.
Restaurant Operating Costs: Restaurant operating costs as a percent of restaurant sales were 95.8% for fiscal 2011 compared to 97.2% in fiscal 2010.
The changes in restaurant-level costs are explained as follows:
Restaurant-level costs for the period ended
September 30, 2010
Increase in food and packaging costs
Decrease in payroll and other employee benefit
costs
Decrease in occupancy and other operating costs
Decrease in depreciation and amortization costs
Restaurant-level costs for the period ended
September 30, 2011
97.2%
.6%
( 1.2% )
( .6% )
( .2% )
95.8%
Food and Packaging Costs: Food and packaging costs for fiscal 2011 increased $60,000 from $7,181,000 (35.2% of restaurant sales) in fiscal 2010 to $7,241,000 (35.9% of restaurant
sales). We experienced dramatic increases in commodity costs including beef, bacon, soft drinks and dairy costs in fiscal 2010 and fiscal 2011.
In fiscal 2010 our weighted food and packaging costs increased approximately 11%. The total menu price increases taken during fiscal 2010 were 7.1%, all of which were taken in the
last four months of the year. The introduction of the $2.89 Craver combo meals in May 2010 negatively impacted our cost of sales by an estimated 1% of restaurant sales; however, we
believe the new value offer has been a significant driver of customer traffic.
In fiscal 2011 our weighted food and packaging costs increased approximately 5%. We implemented a 1.2% menu price increase in February 2011, a 1.1% menu price increase in late
May 2011 and a 2.4% menu price increase in September 2011. We anticipate continued cost pressure on several core commodities, including beef, bacon and dairy for fiscal 2012.
19
However, we anticipate our food and packaging costs as a percentage of sales will decrease in fiscal 2012 from a combination of price increases, product sales mix changes and recipe
modifications.
Payroll and Other Employee Benefit Costs: For fiscal 2011, payroll and other employee benefit costs decreased $316,000 from $7,359,000 (36.1% of restaurant sales) in fiscal 2010 to
$7,043,000 (34.9% of restaurant sales).
The decrease in payroll and other employee benefit expenses as a percent of restaurant sales for fiscal 2011 is primarily the result of higher restaurant sales. Because payroll costs are
semi-variable in nature they decrease as a percentage of restaurant sales when there is an increase in restaurant sales. Additionally payroll and other employee benefits decreased
approximately $409,000 in fiscal 2011 due to two company-owned restaurants sold in February and May 2011 and one co-developed restaurant sold in June 2010. We anticipate payroll
and other employee benefit costs will decrease as a percentage of sales in fiscal 2012 due to the operating leverage on increasing sales.
Occupancy and Other Costs: For fiscal 2011, occupancy and other costs decreased $159,000 from $4,331,000 (21.3% of restaurant sales) in fiscal 2010 to $4,172,000 (20.7% of
restaurant sales). The $159,000 decrease in occupancy and other costs is primarily attributable to:
Decrease in building rent of $173,000 primarily due to the three restaurants sold in fiscal 2011 and 2010.
Decrease of $175,000 in all other restaurant operating costs due to the three restaurants sold in fiscal 2011 and 2010.
The decreases above were offset by the following cost increases:
Increases in various other restaurant operating costs of $84,000 at existing restaurants, comprised primarily of utility costs and bank fees.
An adjustment of $62,000 to our liability for the accretion of deferred rent in fiscal 2011 due to two sold restaurants. This compares to an adjustment of $167,000 in fiscal 2010 due to
negotiated rent reductions at several locations.
Occupancy costs may increase as a percent of sales as new company-owned restaurants are developed due to higher rent associated with sale-leaseback operating leases, as well as
increased property taxes on those locations.
Depreciation and Amortization Costs: For fiscal 2011, depreciation and amortization costs decreased $55,000 from $943,000 in fiscal 2010 to $888,000. Depreciation costs primarily
decreased due to the three restaurants sold in fiscal 2011 and 2010 as well as due to declining depreciation expense in our aging company-owned and joint-venture restaurants. The
decrease was offset by depreciation expense in the fourth quarter of fiscal 2011 of approximately $90,000 related to our company-owned restaurant in Firestone, Colorado that was
reclassified from held for sale to held and used in the accompanying Condensed Consolidated Balance Sheet.
Selling, General and Administrative Costs: For fiscal 2011, selling, general and administrative costs decreased $600,000 from $2,638,000 (10.1% of restaurant sales) in fiscal 2010 to
$2,038,000 (12.9% of restaurant sales). The decrease in selling, general and administrative costs are partially attributable to decreased advertising costs, which decreased to $757,000
(3.8% of restaurant sales) for fiscal 2011 from $1,156,000 (5.7% of restaurant sales) for fiscal 2010, and a decrease in general and administrative costs, which decreased to $1,281,000
(6.3% of restaurant sales) for fiscal 2011 from $1,482,000 (7.3% of restaurant sales) for fiscal 2010 as explained below.
Contributions are made to the advertising materials fund and regional advertising cooperative based on a percentage of sales and there was a reduction in the percentage contribution for
fiscal 2011 compared to fiscal 2010. Additionally in fiscal 2011 there was a refund of $122,000 of excess year-to-date contributions paid to the advertising cooperative. We fully allocated
the returned contributions to the capitalized asset cost for new menu boards in all company-owned and co-developed restaurants.
We anticipate that fiscal 2012 advertising expense will increase from fiscal 2011 and will consist primarily of radio advertising, a new Loyalty Program, social media and on-site and
point-of-purchase merchandising totaling approximately 4.3% of restaurant sales. We anticipate that general and administrative expenses will be relatively stable in fiscal 2012, with the
exception of reinstating certain salaries that were reduced in fiscal 2009 and 2010.
The $201,000 decrease in general and administrative expenses in fiscal 2011 is primarily attributable to:
Reductions in payroll and employee benefit costs of $74,000.
Reduction of $82,000 in other expenses due to a note receivable write off in fiscal 2010.
• Reduction in professional services of $7,000.
20
• Reduction in vacant land costs of $15,000.
Increase of $19,000 in miscellaneous income.
Net reductions in various other fixed expenses of $34,000.
The decreases above were offset by the following cost increases:
Increase in training and recruiting expenses of $12,000.
Increase in stock exchange fees and expenses of $18,000 due to costs incurred for the reverse stock split in December 2010.
Franchise Costs: For fiscal 2011 franchise costs decreased $54,000 from $124,000 (.6% of total revenues) in fiscal 2010 to $70,000 (.3% of total revenues).
The decrease in franchise costs for fiscal 2011 is primarily attributable to sponsorship costs incurred in the prior year associated with the Good Times licensee operating in the Pepsi
Center in Denver, Colorado which closed in late fiscal 2010.
Loss (Gain) on Restaurant Assets: For fiscal 2011 the gain on restaurant assets was $184,000 compared to a loss of $199,000 in fiscal 2010. The $184,000 gain on restaurant assets in
fiscal 2011 is primarily related to the $168,000 gain on the sale of two company-owned restaurants in February and May 2011 and the sale of one co-developed building related to a
restaurant closed in fiscal 2010.
Income (Loss) from Operations: The loss from operations was $665,000 in fiscal 2011 compared to a loss from operations of $1,912,000 in fiscal 2010. The decrease in loss from
operations for the fiscal year is due primarily to matters discussed in the "Restaurant Operating Costs", "General and Administrative Costs", "Franchise Costs" and "Loss (Gain) on
Restaurant Assets" sections above.
Loss from Continuing Operations: The loss from continuing operations was $917,000 for fiscal 2011 compared to a loss of $2,507,000 in fiscal 2010. The change from fiscal 2010 to
fiscal 2011 was primarily attributable to the matters discussed in the "Net Revenues", "Restaurant Operating Costs", "Selling, General and Administrative Costs" and "Franchise Costs"
sections of Item 6, as well as 1) a decrease in net interest expense of $319,000 compared to the same prior year period; and 2) an increase in the unrealized gain related to our interest rate
swap liability of $24,000 in fiscal 2011 compared to fiscal 2010.
Net interest expense for fiscal 2011 includes non-cash amortization of debt issuance costs of $48,000 related to: 1) warrants issued in conjunction with the extension of the PFGI II loan in
January, 2010; and 2) beneficial conversion rights and warrants related to the loan agreement with W Capital and John T. MacDonald entered into in February 2010. Net interest expense
for fiscal 2010 includes non-cash amortization of debt issuance costs of $259,000 related to: 1) warrants issued in conjunction with the PFGI II loan in January, 2010; 2) beneficial
conversion rights and warrants related to the loan agreement with W Capital and John T. MacDonald entered into in February 2010; and 3) warrants related to the loan agreement with
Golden Bridge LLC entered into in April, 2009. (See "Financing" below).
Gain (Loss) from Discontinued Operations: The gain from discontinued operations for fiscal 2011was $22,000 compared to a loss from discontinued operations in fiscal 2010 of
$590,000. The income from discontinued operations of $22,000 for fiscal 2011 represents our lease liability costs in excess of our accrued liability for the Commerce City location offset
by a reversal of a $31,000 lease accrual associated with a Denver location. The lease on the Denver location was terminated in February 2011 and there are no remaining lease
obligations. The fiscal 2010 loss of $590,000 includes the results of operations of $153,000, the fair value of all future lease obligations of $143,000 and impairment charges to write
down the fixed assets to book value and other costs of $294,000, all related to our Commerce City, Colorado dual-branded restaurant that was closed in March 2010 and one Denver,
Colorado co-developed restaurant that was closed in June 2010.
Income from Non-controlling Interests: For fiscal 2011 the expense from non-controlling interests was $118,000 compared to income from non-controlling interests of $165,000 in
fiscal 2010. The non-controlling interests represents the limited partner's share of income or loss in the co-developed restaurants. The $283,000 increase in fiscal 2011 was attributable to
the increased profitability of the co-developed restaurants.
Liquidity and Capital Resources
Cash and Working Capital: As of September 30, 2011, we had $847,000 in cash and cash equivalents on hand. We currently plan to use the cash balance and any cash generated from
operations for our working capital needs and
21
reinvestment in capital expenditures for existing restaurants in fiscal 2012. We believe that we will have sufficient capital to meet our working capital, long term debt obligations and
recurring capital expenditure needs in fiscal 2012 and beyond. As of September 30, 2011, we had a working capital deficit of $488,000 due to normal recurring accounts payable and
accrued liabilities. We will require additional capital sources for the development of new restaurants. We entered into a purchase and sale agreement with an unrelated third party
effective as of October 11, 2011 for the sale of one company-owned restaurant in Littleton, Colorado. We anticipate the sale to finalize prior to December 31, 2011 with estimated net
proceeds of $310,000 which would result in a nominal gain on the sale. $100,000 of the net proceeds will go to reduce the principal of the Wells Fargo Note Payable. Additionally, we
may sell or sublease select underperforming company operated restaurants if we believe the realizable asset value is greater than the long term cash flow value or if the asset does not fit
our longer term distribution and location of restaurants.
Financing:
Wells Fargo Note Payable: In May 2007 we borrowed $1,100,000 from Wells Fargo Bank (the "Bank") under a note payable with an eight year term with a floating interest rate at .50%
below prime. We simultaneously entered into an interest rate swap transaction with Wells Fargo Bank for the full $1,100,000 with a fixed interest rate of 7.77% for the full eight year
term coinciding with the note payable. As previously disclosed in the Company's current report on Form 8-K filed December 17, 2010, we entered into a new Credit and Loan Agreement
that modified the loan covenants and provided additional collateral to Wells Fargo for the remaining loan balance of $528,552. In addition to the normal recurring principal payments we
made additional principal payments in fiscal 2011 of $67,500 from the proceeds of the sale of two company-owned restaurants in Colorado Springs, Colorado to further reduce the note
payable thereby reducing certain collateral under the modified Credit and Loan Agreement.
On December 27, 2011, Good Times Restaurants Inc. and its subsidiary Good Times Drive Thru Inc. (together, the "Company") entered into a First Amendment To Amended and
Restated Credit Agreement and Waiver of Defaults and a Second Amended and Restated Term Note in the principal amount of $470,874.00 (together the "Amendments") with the Bank.
The Amendments are conditional upon the closing of the sale of the Littleton restaurant described under Recent Events and provide for a reduction in the principal amount of the loan by
an additional $100,000 from the proceeds of that sale , the release of collateral associated with that restaurant and a modification to the repayment terms and maturity date of the loan to
December 31, 2013. The Amendments waive the current covenant defaults asserted by the Bank and modify certain financial covenants in the Credit Agreement requiring the Company
to have a Net Worth not less than $2,500,000 as of December 31, 2012 and thereafter and an EBITDA Coverage Ratio not less than (i) 0.30 to 1.00 as of the end of the third quarter
ending June 30, 2012, (ii) 0.70 to 1.00 as of the end of the fiscal year ending September 30, 2012, and (iii) .90 to 1.00 as of the end of each fiscal quarter thereafter, determined on a
rolling 4-quarter basis. The Company is required to prepay the Term Loan up to the full outstanding principal balance of the note (in addition to any and all other obligations due to Bank
including the Interest Rate Swap) upon the sale of any stock or other equity interest in the Company. There was not any change to the interest rate or fees payable to the Bank under the
Amendment and the re-amortized loan balance will be $356,700 as of January 2, 2012. Repayment of the loan is secured by equipment in various restaurants owned by the Company.
PFGI II LLC Promissory Note: In July 2008, we entered into a $2,500,000 promissory note with an unrelated third party (PFGI II, LLC) and amended that note on April 20, 2009
extending the maturity to July 10, 2010. Effective January 2, 2010, the Company entered into an agreement to amend its loan with PFGI II LLC. The maturity date was extended to
December 31, 2012, the interest rate was increased to 8.65% and monthly payments of principal and interest are payable beginning January 31, 2010, based upon a 25 year amortization
prior to maturity. In connection with the agreement, the Company issued a three-year warrant dated January 2, 2010 to PFGI II, LLC which provides that PFGI II, LLC may at any time
from January 2, 2010 until December 31, 2012 purchase up to 37,537 shares of the Company's common stock at an exercise price of $3.33 per share. The number of shares purchasable
upon exercise of the warrant and the exercise price are subject to customary anti-dilution adjustments upon the occurrence of any stock dividends, stock splits, reverse stock splits,
recapitalizations, reclassifications, stock combinations or similar events. The fair value of the warrant issued to PFGI II, LLC was determined to be $79,000 with the following
assumptions; 1) risk free interest rate of 1.7%, 2) an expected life of 3 years, and 3) an expected dividend yield of zero. The fair value of $79,000 was charged to the note discount and
credited to Additional Paid in Capital. The note discount is being amortized over the term of thirty six months and charged to interest expense.
The promissory note originally constituted a revolving line-of-credit for the development of new restaurants which was advanced and repaid on a monthly basis from time to time. The
promissory note now constitutes a term loan with monthly payments of principal and interest. The loan is secured by separate leasehold deeds of trust and security agreements related
22
to six company-owned restaurants and a first deed of trust on one real property funded by the line of credit. The total outstanding balance on the promissory note was $1,645,000 at
September 30, 2011. Of the $1,645,000 outstanding balance, $1,595,000 is related to the construction of one company-owned restaurant in Firestone, Colorado that opened in October
2008. We anticipate that we will either extend the maturity date of the PFGI II note or sell the fully developed restaurant in the sale leaseback market as the profitability of the restaurant
improves and the trade area develops. On December 5, 2010 the company sold a parcel of land in Aurora, Colorado and used approximately $812,000 of the net proceeds to reduce the
loan balance.
Golden Bridge, LLC: On April 20, 2009 as reported on Form 8-K, the Company entered into a loan agreement with Golden Bridge, LLC ("Golden Bridge"), pursuant to which Golden
Bridge made a loan of $185,000 (the "Golden Bridge Loan") to GTDT to be used for restaurant marketing and other working capital costs. Eric Reinhard, Ron Goodson, David Grissen,
Richard Stark, and Alan Teran, who were all members of the Company's Board of Directors at the time of the transaction and stockholders of the Company, are the sole members of
Golden Bridge. The loan was repaid in full on December 13, 2010 from the proceeds of the SII Investment Transaction (see "SII Investment Transaction" below).
In connection with the Golden Bridge Loan, the Company issued a three-year warrant dated April 20, 2009 to Golden Bridge which provides that Golden Bridge may at any time from
April 20, 2009 until April 20, 2012 purchase up to 30,833 shares of the Company's common stock at an exercise price of $3.45 per share. The number of shares purchasable upon
exercise of the warrant and the exercise price are subject to customary anti-dilution adjustments upon the occurrence of any stock dividends, stock splits, reverse stock splits,
recapitalizations, reclassifications, stock combinations or similar events. The fair value of the warrant issued to Golden Bridge was determined to be $42,000. The note discount was
amortized over fourteen months and charged to interest expense.
W. Capital and John T. McDonald: On February 1, 2010, the Company entered into a loan agreement with W Capital, Inc. ("W Capital"), John T. McDonald ("McDonald") and Golden
Bridge, pursuant to which the lenders made loans totaling $200,000, with up to an additional $200,000 available through April 30, 2010, to be used for restaurant marketing and other
working capital uses of GTDT. As set forth below, the loan agreement was subsequently amended as of April 1, 2010 to remove Golden Bridge as a lender and to replace it with
additional loans from W Capital and McDonald. On December 13, 2010, the outstanding principal amount of the Bridge Loans was paid in full from the proceeds of the SII Investment
Transaction, and accrued interest on the Bridge Loans was converted into 26,477 shares of Common Stock.
In connection with the Bridge Loans, the Company issued warrants dated February 1, 2010 to W Capital and McDonald which provide that the lenders may at any time from February 1,
2010 until two years from the date of repayment or conversion of the Bridge Loans purchase up to an aggregate of 16,667 shares of the Company's Common Stock at an exercise price of
25% less than the average price of the Company's common stock during the 20 days prior to the exercise date, provided, however, that the exercise price shall not be below $2.25 per
share nor above $3.24 per share. Pursuant to the terms of the loan agreement, because the Bridge Loans were not repaid prior to August 1, 2010, the Company issued warrants to W
Capital and McDonald for the purchase of 16,667 additional shares of the Company's Common Stock upon the same terms as the initial warrants. The number of shares purchasable upon
exercise of the warrants issued to W Capital and McDonald and the exercise price are subject to customary anti-dilution adjustments upon the occurrence of any stock dividends, stock
splits, reverse stock splits, recapitalizations, reclassifications, stock combinations or similar events. The warrants will expire on December 12, 2012.
The fair value of the warrants issued February 1, 2010 was determined to be $38,000 with the following assumptions: 1) risk free interest rate of 1.41%, 2) an expected life of 2.5 years,
and 3) an expected dividend yield of zero. The fair value of $38,000 was charged to the note discount and credited to Additional Paid in Capital. The note discount was amortized over the
term of seven months and charged to interest expense.
The intrinsic value of the embedded beneficial conversion feature of the Bridge Loans was determined to be $161,000. The intrinsic value of $161,000 was charged to the note discount
and credited to Additional Paid in Capital. The note discount was amortized over the term of seven months and charged to interest expense.
The fair value of the warrants issued August 1, 2010 was determined to be $36,000 with the following assumptions: 1) risk free interest rate of .70%, 2) an expected life of 2.4 years, and
3) an expected dividend yield of zero. The fair value of $36,000 was charged to the note discount and credited to Additional Paid in Capital. The note discount was amortized over the
term of five months and charged to interest expense.
23
SII Investment Transaction: On October 29, 2010, the Company and SII entered into the Purchase Agreement, pursuant to which the Company agreed to sell, and SII agreed to purchase,
1,400,000 Shares of Common Stock at a purchase price of $1.50 per share, or an aggregate purchase price of $2,100,000. The Purchase Agreement was amended on December 13, 2010.
On December 13, 2010, the Company and SII completed the SII Investment Transaction through the issuance and sale of the Shares to SII. On December 13, 2010, the Company and SII
also entered into a Registration Rights Agreement, pursuant to which the Company granted SII certain registration rights with respect to resale of the Shares. As a result of the
completion of the SII Investment Transaction, SII became the beneficial owner of approximately 51.4 percent of the Company's outstanding Common Stock as of December 13, 2010. As
of December 15, 2011, SII beneficially owns 50.7% of our outstanding Common Stock.
The Purchase Agreement provides that for so long as SII holds more than 50 percent of our outstanding common stock, (i) our Board of Directors shall consist of seven members, and (ii)
SII will have the right to designate four members of our Board. In addition, the Purchase Agreement provides that for a period of three years following the Closing, as long as SII
continues to own at least 80 percent of its Common Stock acquired, SII will have a right of first refusal to purchase additional securities which are offered and sold by the Company for
the purpose of maintaining its percentage interest in the Company.
The proceeds from the SII Investment Transaction were used to pay approximately $288,000 of expenses related to the transaction, repay $585,000 in short term loans, reduce accrued
liabilities by $200,000, reduce accounts payable by approximately $150,000 and the balance going to increase the Company's working capital.
Cash Flows: Net cash used in operating activities was $539,000 for fiscal 2011 compared to cash used in operating activities of $737,000 in fiscal 2010. The decrease in net cash used in
operating activities from continuing operations for fiscal 2011 was the result of a net loss from continuing operations of $917,000 and non-cash reconciling items totaling $397,000
(comprised principally of depreciation and amortization of $888,000, amortization of debt issuance costs of $48,000, $61,000 of stock option compensation expense, a $184,000 gain on
asset sales, a $120,000 decrease in accrued liabilities related to property taxes, a $220,000 decrease in our trade accounts payable and net increases in operating assets and liabilities
totaling $76,000). Net cash used in operating activities from discontinued operations for fiscal 2011 was $19,000 compared to $140,000 for fiscal 2010.
Net cash provided by investing activities in fiscal 2011 was $954,000 compared to $54,000 in fiscal 2010. The fiscal 2011 activity reflects payments for the purchase of property and
equipment of $189,000 and proceeds from the sales of fixed assets of $1,143,000.
Net cash provided by financing activities in fiscal 2011 was $3,000 compared to $297,000 in fiscal 2010. The fiscal 2011 activity includes principal payments on notes payable and long
term debt of $1,617,000, proceeds from a stock sale of $1,727,000 and net distributions to non-controlling interests in partnerships of $107,000.
Contingencies and Off-Balance Sheet Arrangements: We remain contingently liable on various land leases underlying restaurants that were previously sold to franchisees. We have
never experienced any losses related to these contingent lease liabilities, however if a franchisee defaults on the payments under the leases, we would be liable for the lease payments as
the assignor or sublessor of the lease. Currently we have not been notified nor are we aware of any leases in default under which we are contingently liable, however there can be no
assurance that there will not be in the future, which could have a material adverse effect on our future operating results.
Critical Accounting Policies and Estimates: We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as the "FASB." The FASB sets
generally accepted accounting principles (GAAP) that we follow to ensure we consistently report our financial condition, results of operations, and cash flows. Over the years, the FASB
and other designated GAAP-setting bodies, have issued standards in the form of FASB Statements, Interpretations, FASB Staff Positions, EITF consensuses, AICPA Statements of
Position, etc.
The FASB recognized the complexity of its standard-setting process and embarked on a revised process in 2004 that culminated in the release on July 1, 2009, of the FASB Accounting
Standards Codification,™ sometimes referred to as the Codification or ASC. To the Company, this means instead of following the Statements, Interpretations, Staff Positions, etc., we
will follow the guidance in Topics as defined in the ASC. The Codification does not change how the Company accounts for its transactions or the nature of related disclosures made.
However, when referring to guidance issued by the FASB, the Company refers to topics in the ASC rather than Statements, etc. The above change was made effective by the FASB for
periods ending on or after September 15, 2009. We have updated references to GAAP in this Annual Report on Form 10-K to reflect the guidance in the Codification.
24
Notes Receivable: We evaluate the collectability of our note receivables from franchisees annually. The aggregate notes receivable on the consolidated balance sheet at September 30,
2011 were $15,000.
Discontinued Operations: Discontinued operations are presented in accordance with FASB ASC 205-20, Presentation of Financial Statements. During fiscal 2010 we closed two
locations, one dual-branded restaurant in Commerce City, Colorado in March 2010 and one co-developed restaurant in Denver, Colorado in June 2010. The loss from discontinued
operations includes both the current and historical results of operations, the fair value of all future lease obligations and an impairment charge to write down the fixed assets to book
value. Fixed assets and associated accumulated depreciation of $406,000 related to the Commerce City location are included in the property and equipment of our condensed consolidated
balance sheet. Current and long-term liabilities related to discontinued operations relate to the future estimated lease obligations of the Commerce City location.
With respect to the Commerce City closed location, we have continuing aggregate lease obligations of $671,000 and we have subleased the location for $546,000 in aggregate sublease
income. We have recorded an estimated discounted liability of $96,000 related to this location. We terminated the lease on the Denver location effective February 1, 2011 and no longer
remain liable for any future lease obligations. In fiscal 2011 we reversed the $31,000 accrued lease liability associated with the Denver location.
Non-controlling Interests: The Company adopted the provisions of FASB ASC 810, Consolidation, effective October 1, 2009. FASB ASC 810 requires non-controlling interests,
previously called minority interests, to be presented as a separate item in the equity section of the consolidated balance sheet. It also requires the amount of consolidated net income or
loss attributable to non-controlling interests to be clearly presented on the face of the consolidated income statement. Additionally, Topic 810 clarifies that changes in a parent's ownership
interest in a subsidiary that do not result in deconsolidation are equity transactions, and that deconsolidation of a subsidiary requires gain or loss recognition in net income based on the
fair value on the deconsolidation date. Topic 810 was applied prospectively with the exception of presentation and disclosure requirements, which were applied retrospectively for all
periods presented, and did not significantly change the presentation of our consolidated financial statements.
Impairment of Long-Lived Assets: We review our long-lived assets for impairment in accordance with the guidance of FASB ASC 360-10, Property, Plant, and Equipment, including
land, property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the capitalized costs of the assets to the future undiscounted net cash flows expected to be generated by the assets and the expected cash flows are
based on recent historical cash flows at the restaurant level (the lowest level that cash flows can be determined).
An analysis was performed on a restaurant by restaurant basis at September 30, 2011. Assumptions used in preparing expected cash flows were as follows:
• Sales projections are as follows: Fiscal 2012 sales are projected to increase 3% to 5% with respect to fiscal 2011, for fiscal years 2013 to 2024 we have used annual increases
of 2% to 3%. We believe the 2% to 3% increase in the years beyond 2012 is a reasonable expectation of growth and that it would be unreasonable to expect no growth in our
sales. These increases include menu price increases in addition to any real growth. Historically our weighted menu prices have increased 1.5% to 6%.
• Our variable and semi-variable restaurant operating costs are projected to increase proportionately with the sales increases as well as increasing an additional 1.5% per year
consistent with inflation.
• Our other fixed restaurant operating costs are projected to increase 1.5% to 2% per year.
• Food and packaging costs are projected to decrease approximately 1% as a percentage of sales in relation to our current fiscal 2011 food and packaging costs as a result of
menu price increases and other menu initiatives.
• Salvage value has been estimated on a restaurant by restaurant basis considering each restaurant's particular equipment package and building size.
Given the results of our impairment analysis at September 30, 2011 there are no restaurants which are impaired as their projected undiscounted cash flows show recoverability of
their asset values.
Our impairment analysis included a sensitivity analysis with regard to the cash flow projections that determine the recoverability of each restaurant's assets. The results indicate that even
with a 15% decline in our projected cash flows we would still not have any potential impairment issues. However if we elect to sublease, close or otherwise exit a restaurant location
impairment could be required.
25
Each time we conduct an impairment analysis in the future we will compare actual results to our projections and assumptions, and to the extent our actual results do not meet
expectations, we will revise our assumptions and this could result in impairment charges being recognized.
All of the judgments and assumptions made in preparing the cash flow projections are consistent with our other financial statement calculations and disclosures. The assumptions used in
the cash flow projections are consistent with other forward-looking information prepared by the Company, such as those used for internal budgets, discussions with third parties, and/or
reporting to management or the Board of Directors.
In fiscal 2010 we closed two company operated restaurants resulting in total charges of $396,000. Projecting the cash flows for the impairment analysis involves significant estimates with
regard to the performance of each restaurant, and it is reasonably possible that the estimates of cash flows may change in the near term resulting in the need to write down operating assets
to fair value. If the assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value. Fair
value would be determined using forecasted cash flows discounted using an estimated average cost of capital and the impairment charge would be recognized in income from operations.
Income Taxes: We account for income taxes in accordance with FASB ASC 740, Income Taxes. FASB ASC 740 prescribes the use of the liability method whereby deferred tax asset
and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated
realizable value. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary. We believe it is more likely than not that the
recorded deferred tax assets will be realized.
The Company is subject to taxation in various jurisdictions. The Company continues to remain subject to examination by U.S. federal authorities for the years 2008 through 2011. The
Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the
Company's financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded. The Company's practice is to recognize
interest and/or penalties related to income tax matters in income tax expense. The Company has accrued $0 for interest and penalties as of September 30, 2011.
Variable Interest Entities: We analyze any potential Variable Interest or Special-Purpose Entities in accordance with the guidance of FASB ASC 810-10, Consolidation of Variable
Interest and Special-Purpose Entities. Once an entity is determined to be a Variable Interest Entity (VIE), the party with the controlling financial interest, the primary beneficiary, is
required to consolidate it. We have two franchisees with notes payable to the Company and after analysis we have determined that, while these franchisees are VIE's as defined by FASB
ASC 810-10, we are not the primary beneficiary of the entities, and therefore they are not required to be consolidated.
Fair Value of Financial Instruments: We adopted the provisions of FASB ASC 820, Fair Value Measurements and Disclosures, effective October 1, 2008. FASB ASC 820 defines fair
value, establishes a framework for measuring fair value under GAAP and enhances disclosure about fair value measurements. The adoption of this guidance did not have a material
impact on either our financial position or results of operations.
New Accounting Pronouncements : There are no current pronouncements that affect the Company.
Subsequent Events:
We entered into a purchase and sale agreement with an unrelated third party effective as of October 11, 2011 for the sale of one company-owned restaurant in Littleton, Colorado. We
anticipate the sale to close prior to December 31, 2011 with estimated net proceeds of $310,000.
As previously disclosed in the Company's current report on Form 8-K filed December 9, 2011, we received notice from Wells Fargo Bank, N.A. (the "Bank") that the Company is
currently not in compliance with certain covenants under the Amended and Restated Credit Agreement dated December 10, 2010 (the "Credit Agreement"), including covenants requiring
that the Company's tangible net worth not be less than $2,500,000 at any time and that the Company deliver certain landlord's disclaimer and consent documents to the Bank. As
previously disclosed in the Company's current report
26
on Form 8-K filed December 27, 2011 we entered into a First Amendment to the Amended Credit Agreement and Waiver of Defaults and a Second Amended and Restated Term Note
with Wells Fargo Bank (together, the "Amendments") that waived the current covenant defaults and modified the loan covenants and note terms. The Amendments are conditioned
upon the closing of the sale of the Littleton restaurant described above and provide for a prepayment of $100,000 in principal from the proceeds from the sale of the Littleton, Colorado
restaurant, the release of collateral associated with that restaurant, the waiver of certain other collateral requirements, and a revision to the amortization and maturity date of the remaining
loan balance as of January 2, 2012 of $349,000 to December 31, 2013. There was no change to the interest rate of the loan.
ITEM 7A. QUANTITIATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
27
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - September 30, 2011 and 2010
Consolidated Statements of Operations - For the Years Ended September 30, 2011 and
2010
Consolidated Statements of Stockholders' Equity - For the Period from October 1, 2009
through September 30, 2011
Consolidated Statements of Cash Flows - For the Years Ended September 30, 2011 and
2010
Notes to Consolidated Financial Statements
PAGE
F-2
F-3
F-4
F-5
F-6
F-7 - F-19
To the Board of Directors and Stockholders
Good Times Restaurants, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Good Times Restaurants, Inc. and subsidiary as of September 30, 2011 and 2010, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years then ended. 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. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also 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 financial statement presentation. 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 Good Times Restaurants, Inc. and subsidiary as of
September 30, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Hein & Associates LLP
Denver, Colorado
December 29, 2011
F-2
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARY
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Receivables, net of allowance for doubtful
accounts of $0
Prepaid expenses and other
Inventories
Notes receivable
Total current assets
PROPERTY AND EQUIPMENT
Land and building
Leasehold improvements
Fixtures and equipment
Less accumulated depreciation and
amortization
Assets held for sale
OTHER ASSETS:
Notes receivable, net of current portion
Deposits and other assets
TOTAL ASSETS
CONSOLIDATED BALANCE SHEETS
September 30,
2011
2010
$847,000
$429,000
106,000
47,000
191,000
5,000
1,196,000
6,969,000
3,617,000
7,669,000
18,255,000
( 12,533,000 )
5,722,000
-
10,000
71,000
81,000
$6,999,000
157,000
38,000
201,000
9,000
834,000
5,653,000
3,821,000
8,229,000
17,703,000
( 12,828,000 )
4,875,000
2,445,000
10,000
154,000
164,000
$8,318,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and
capital lease obligations, net of discount of
$26,000 and $48,000, respectively
Accounts payable
Deferred income
Liabilities related to discontinued operations
Other accrued liabilities
Total current liabilities
LONG-TERM LIABILITIES:
Debt and capital lease obligations, net of
current portion and net of discount of $7,000 and
$33,000, respectively
Liabilities related to discontinued operations
Deferred liabilities
Total long-term liabilities
COMMITMENTS AND CONTINGENCIES (Notes 4
and 6)
STOCKHOLDERS' EQUITY:
Good Times Restaurants Inc stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized, none issued
and outstanding as of September 30, 2011 and
2010
Common stock, $.001 par value; 50,000,000 shares
Authorized, 2,726,214 and 1,299,520 shares
issued and
outstanding as of September 30, 2011 and
2010, respectively
Capital contributed in excess of par value
Accumulated deficit
Total Good Times Restaurants Inc stockholders'
equity
Non-controlling interest in partnerships
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
$195,000
496,000
101,000
14,000
878,000
1,684,000
2,067,000
82,000
646,000
2,795,000
$702,000
716,000
89,000
20,000
1,176,000
2,703,000
3,005,000
123,000
793,000
3,921,000
-
-
8,000
19,977,000
( 17,680,000 )
2,305,000
4,000
18,153,000
( 16,737,000 )
1,420,000
215,000
2,520,000
274,000
1,694,000
$6,999,000
$8,318,000
See accompanying notes to these consolidated financial statements.
F-3
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
September 30,
2011
2010
NET REVENUES:
Restaurant sales
Area development and franchise fees
Franchise royalties
Total net revenues
RESTAURANT OPERATING COSTS:
Food and packaging costs
Payroll and other employee benefit costs
Restaurant occupancy costs
Other restaurant operating costs
Depreciation and amortization
Total restaurant operating costs
General and administrative costs
Advertising costs
Franchise costs
Loss (gain) on restaurant asset sale
Loss From Operations
Other Income (Expenses):
Interest income
Interest expense
Unrealized income (loss) on interest rate swap
Total other expenses, net
LOSS FROM CONTINUING OPERATIONS
Income (loss) from discontinued operations
NET LOSS
Income (loss) from non-controlling interests
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations
Discontinued operations
Net loss applicable to common stockholders
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic and Diluted
$20,183,000
1,000
419,000
20,603,000
7,241,000
7,043,000
3,220,000
952,000
888,000
19,344,000
1,281,000
757,000
70,000
( 184,000 )
( 665,000 )
1,000
( 280,000 )
27,000
( 252,000 )
( $917,000 )
22,000
( $895,000 )
( 118,000 )
$20,390,000
16,000
457,000
20,863,000
7,181,000
7,359,000
3,361,000
970,000
943,000
19,814,000
1,482,000
1,156,000
124,000
199,000
( 1,912,000 )
1,000
( 599,000 )
3,000
( 595,000 )
( $2,507,000 )
(590,000 )
( $3,097,000 )
165,000
( $1,013,000 )
( $2,932,000 )
( $.38)
$.01
( $.42)
( $1.93 )
( $.45 )
( $2.26 )
2,440,860
1,299,520
See accompanying notes to these consolidated financial statements.
F-4
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 2009 THROUGH SEPTEMBER 30, 2011
Preferred Stock Common Stock
Issued
Par
Value
Issued
Shares
(1)
Par
Value
Capital
Contributed
in Excess of
Par Value
Non-
controlling
interest in
Partnerships
Accumulated
Deficit
Total
Shares
BALANCES, October 1, 2009 -
Stock option compensation cost
Value of warrants issued with
debt
Value of beneficial conversion
feature
Non-controlling interest in
Partnerships
Net Loss and comprehensive
loss
BALANCES, September 30,
2010
Stock issued
Stock option compensation cost
Non-controlling interest in
Partnerships
Net Loss and comprehensive
loss
BALANCES, September 30,
2011
-
-
$ 0 1,299,520 $4,000 $17,751,000 $428,000 $(13,805,000 ) $4,378,000
88,000
88,000
153,000
161,000
153,000
161,000
(154,000)
(154,000)
(2,932,000) (2,932,000)
$ 0 1,299,520 $4,000 $18,153,000
4,000 1,763,000
61,000
1,426,694
$274,000 $(16,737,000 ) $1,694,000
1,767,000
61,000
(59,000)
70,000
11,000
(1,013,000) (1,013,000)
$ 0 2,726,214 $8,000 $19,977,000 $215,000 $(17,680,000 ) $2,520,000
(1) Adjusted to effect a 1 for 3 reverse stock split on December 31, 2010
See accompanying notes to these consolidated financial statements.
F-5
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
Cash Flows from Operating Activities:
Net Loss
Income (loss) from discontinued operations
Net loss from continuing operations
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization
Amortization of debt issuance costs
Accretion of deferred rent
Write off of note receivable
Loss (gain) on disposal of property, restaurants and equipment
Stock option compensation cost
Unrealized loss (income) on interest rate swap agreement
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables
Inventories
Prepaid expenses and other
Deposits and other assets
(Decrease) increase in:
Accounts payable
Accrued and other liabilities
Net cash used in operating activities from continuing operations
Net cash used in operating activities from discontinued operations
Net cash used in operating activities
Cash Flows From Investing Activities:
Payments for the purchase of property and equipment
Proceeds from the sale of assets
Payments received on loans to franchisees and to others
Net cash provided by investing activities
Cash Flows From Financing Activities:
Principal payments on notes payable, capital leases, and long-term
debt
Borrowings on notes payable and long-term debt
Proceeds from stock sale
Advances (distributions) from minority interest partner
Net cash provided by financing activities
Net Change in Cash and Cash Equivalents:
Cash and Cash Equivalents, beginning of year
Cash and Cash Equivalents, end of year
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
Non-cash fair value of warrants and beneficial conversion feature
Purchase of equipment with debt and capital leases
September 30,
2011
2010
$( 895,000 )
22,000
( 917,000 )
$( 3,097,000 )
( 590,000 )
( 2,507,000 )
888,000
48,000
( 62,000 )
4,000
( 184,000 )
61,000
( 27,000 )
51,000
10,000
( 9,000 )
( 43,000 )
( 220,000 )
( 120,000 )
( 520,000 )
( 19,000 )
(539,000 )
( 189,000 )
1,143,000
-
954,000
(1,617,000 )
-
1,727,000
( 107,000 )
3,000
418,000
429,000
$847,000
$240,000
-
$124,000
943,000
259,000
( 167,000 )
85,000
199,000
88,000
( 3,000 )
22,000
10,000
( 6,000 )
( 47,000 )
361,000
166,000
( 597,000 )
( 140,000 )
( 737,000 )
( 61,000 )
100,000
15,000
54,000
( 144,000 )
400,000
-
41,000
297,000
( 386,000 )
815,000
$429,000
$282,000
$313,000
-
See accompanying notes to these consolidated financial statements.
F-6
1. Organization and Summary of Significant Accounting Policies :
Notes to Consolidated Financial statements
Organization - Good Times Restaurants Inc. (Good Times or the Company) is a Nevada corporation. The Company operates through its wholly owned subsidiary Good Times Drive Thru
Inc. (Drive Thru).
Drive Thru commenced operations in 1986 and, as of September 30, 2011, operates twenty five company-owned and joint venture drive-thru fast food hamburger restaurants. The
Company's restaurants are located in Colorado. In addition, Drive Thru has twenty franchises, sixteen operating in Colorado, two in Wyoming, one in Idaho and one in North Dakota, and
is offering franchises for development of additional Drive Thru restaurants.
We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as the "FASB". The FASB sets generally accepted accounting principles
(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™, sometimes referred to as the Codification or ASC.
Principles of Consolidation - The consolidated financial statements include the accounts of Good Times, its subsidiary and one limited partnership, in which the Company exercises
control as general partner. In June 2010 the Company sold its interest in one limited partnership to the limited partner and then entered into a franchise agreement with the limited partner
who now operates the restaurant as a franchisee. The Company owns an approximate 51% interest in the remaining partnership, is the sole general partner and receives a management fee
prior to any distributions to the limited partners. Because the Company owns an approximate 51% interest in the partnership and exercises complete management control over all
decisions for the partnership, except for certain veto rights, the financial statements of the partnership are consolidated into the Company's financial statements. The equity interest of the
unrelated limited partner is shown on the accompanying consolidated balance sheet in the stockholders' equity section as a non-controlling interest, and the limited partner's share of the
net income or loss in the partnership is shown as non-controlling interest income or expense in the accompanying consolidated statement of operations. All inter-company accounts and
transactions are eliminated.
Accounting Estimates - The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates
and assumptions that affect the amounts reported in these consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Reclassification - Certain prior year balances have been reclassified to conform to the current year's presentation. Such reclassifications had no effect on the net income or loss.
Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.
Accounts Receivable - Accounts receivable include uncollateralized receivables from our franchisees and our advertising fund, due in the normal course of business, generally requiring
payment within thirty days of the invoice date. On a periodic basis the Company monitors all accounts for delinquency and provides for estimated losses of uncollectible accounts.
Currently and historically there have been no allowances for unrecoverable accounts receivable.
Inventories - Inventories are stated at the lower of cost or market, determined by the first-in first-out method, and consist of restaurant food items and related packaging supplies.
Property and Equipment - Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, generally three
to eight years. Property and equipment under capital leases are stated at the present value of minimum lease payments and are amortized using the straight-line method over the shorter of
the lease term or the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the term of the lease or the estimated
useful life of the asset.
Maintenance and repairs are charged to expense as incurred, and expenditures for major improvements are capitalized. When assets are retired, or otherwise disposed of, the property
accounts are relieved of costs and accumulated depreciation with any resulting gain or loss credited or charged to income.
F-7
At September 30, 2010 we had classified $2,445,000 as assets held for sale in the accompanying consolidated balance sheet. These costs were related to two sites, one in Firestone,
Colorado which has been fully developed and one in Aurora, Colorado that was sold to a third party in December 2010. The proceeds of the land sale were used for the reduction of the
line of note payable to PFGI II, LLC. As of September 30, 2011 we have reclassified the Firestone, Colorado property as held and used resulting in a $92,000 depreciation expense charge
to accurately reflect the net book value of the restaurant in the accompanying consolidated balance sheet.
Impairment of Long-Lived Assets - We review our long-lived assets for impairment in accordance with the guidance of FASB ASC 360-10, Property, Plant, and Equipment, including
land, property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the capitalized costs of the assets to the future undiscounted net cash flows expected to be generated by the assets and the expected cash flows are
based on recent historical cash flows at the restaurant level (the lowest level that cash flows can be determined).
An analysis was performed on a restaurant by restaurant basis at September 30, 2011, given the results of our analysis there were no restaurants which are impaired as their projected
undiscounted cash flows show recoverability of their asset values.
In fiscal 2010 we closed two company operated restaurants resulting in total charges of $396,000. Projecting the cash flows for the impairment analysis involves significant estimates with
regard to the performance of each restaurant, and it is reasonably possible that the estimates of cash flows may change in the near term resulting in the need to write down operating assets
to fair value. If the assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value. Fair
value would be determined using forecasted cash flows discounted using an estimated average cost of capital and the impairment charge would be recognized in income from operations.
Sales of Restaurants and Restaurant Equity Interests - Sales of restaurants or non-controlling equity interests in restaurants developed by the Company are recorded under either the full
accrual method or the installment method of accounting. Under the full accrual method, a gain is not recognized until the collectability of the sales price is reasonably assured and the
earnings process is virtually complete without further contingencies. When a sale does not meet the requirements for income recognition, the related gain is deferred until those
requirements are met. Under the installment method, the gain is incrementally recognized as principal payments on the related notes receivable are collected. The Company's accounting
policy, with regards to the sale of restaurants, is in accordance with the guidance of FASB ASC 360-10, Property, Plant, and Equipment. If the initial payment is less than specified
percentages, use of the installment method is required.
The Company's accounting for the sale of restaurants is also in accordance with FASB ASC 810-20, Consolidation of Variable Interest and Special-Purpose Entities, because the risks and
other incidents of ownership have been transferred to the buyer. Specifically, a) no continuing involvement by the Company exists in restaurants that are sold, b) sales contracts and
related income recognition are not dependant on the future successful operations of the sold restaurants, and c) the Company is not involved as a guarantor on the purchasers' debts.
Deferred Liabilities - Rent expense is reflected on a straight-line basis over the term of the lease for all leases containing step-ups in base rent. An obligation representing future
payments (which totaled $322,000 as of September 30, 2011) is reflected in the accompanying consolidated balance sheet as a deferred liability. Also included in the $646,000 deferred
liability balance is a $307,000 deferred gain on the sale of the building and improvements of one Company-owned restaurant in a sale leaseback transaction. The building and
improvements were subsequently leased back from the third party purchaser. The gain will be recognized in future periods in proportion to the rents paid on the twenty year lease.
Opening Costs - Restaurant opening costs are expensed as incurred.
Advertising - The Company incurs advertising expenses in connection with the marketing of its restaurant operations. Advertising costs are expensed when the related advertising begins.
Franchise and Area Development Fees - Individual franchise fee revenue is deferred when received and is recognized as income when the Company has substantially performed all of its
obligations under the franchise agreement and the franchisee has commenced operations. The Company's commitments and obligations pursuant to the franchise agreements consist of a)
development assistance; including site selection, building specifications and equipment purchasing and
F-8
b) operating assistance; including training of personnel and preparation and distribution of manuals and operating materials. All of these obligations are effectively complete upon the
opening of the restaurant at which time the franchise fee and the portion of any development fee allocable to that restaurant is recognized. There are no additional material commitments
or obligations.
The Company has not recognized any franchise fees that have not been collected. The Company segregates initial franchise fees from other franchise revenue in the statement of
operations. Revenues and costs related to company-owned restaurants are segregated from revenues and costs related to franchised restaurants in the statement of operations.
Continuing royalties from franchisees, which are a percentage of the gross sales of franchised operations, are recognized as income when earned. Franchise development expenses, which
consist primarily of legal costs and restaurant opening expenses associated with developing and opening franchise restaurants, are expensed against the related franchise fee income.
Operating Partner Program - Operating Partners in a restaurant share in future increases of their restaurant's cash flows above an established baseline, which is based on the preceding
twelve months' cash flow after full allocation of advertising and capital expenses. This program is designed to figuratively put Operating Partners in the shoes of an owner so that a
portion of their compensation is derived solely from the improvement in the financial performance of their respective restaurants. The portion of cash flow increases allocable to the
Operating Partners are expensed as incurred on a quarterly basis, with a cumulative adjustment made for any months where cash flows fall below the established baselines. Compensation
under this program is expensed to restaurant operations as incurred. No other long term benefits accrue or vest to the Operating Partners in this program. Operating Partners are
employees at will and are subject to termination from this program if certain operating, customer service and financial objectives are not met.
Income Taxes - We account for income taxes in accordance with FASB ASC 740, Income Taxes. FASB ASC 740 prescribes the use of the liability method whereby deferred tax asset
and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated
realizable value. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary. We believe it is more likely than not that the
recorded deferred tax assets will be realized.
The Company is subject to taxation in various jurisdictions. The Company continues to remain subject to examination by U.S. federal authorities for the years 2008 through 2011. The
Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the
Company's financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded. The Company's practice is to recognize
interest and/or penalties related to income tax matters in income tax expense. No accrual for interest and penalties was considered necessary as of September 30, 2011.
Net Income (Loss) Per Common Share - The income (loss) per share is presented in accordance with the guidance of FASB ASC 260-10, Earnings per Share (EPS). Basic EPS is
calculated by dividing the income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Options for 14,964 and 906 shares of common
stock were not included in computing diluted EPS for 2011 and 2010, respectively, because their effects were anti-dilutive.
Financial Instruments and Concentrations of Credit Risk - Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to
perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have
similar economic characteristics that would cause their ability to meet contractual obligations to be similarly effected by changes in economic or other conditions. Financial instruments
with off-balance-sheet risk to the Company include lease liabilities whereby the Company is contingently liable as a guarantor of certain leases that were assigned to third parties in
connection with various sales of restaurants to franchisees (see Note 7).
Financial instruments potentially subjecting the Company to concentrations of credit risk consist principally of receivables. At September 30, 2011, notes receivable totaled $15,000 and
is due from one entity. Additionally, the Company has other current receivables totaling $106,000, which includes $67,000 of franchise receivables.
F-9
The Company purchases 100% of its restaurant food and paper from one vendor. The Company believes a sufficient number of other suppliers exist from which food and paper could be
purchased to prevent any long-term, adverse consequences.
The Company operates in one industry segment, restaurants. A geographic concentration exists because the Company's customers are generally located in the State of Colorado.
Comprehensive Income (Loss ) - Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as adjustments
resulting from unrealized gains or losses on held-to-maturity investments and certain hedging transactions.
In May 2007, the Company entered into an interest rate swap agreement, designated as a cash flow hedge, which hedges the Company's exposure to interest rate fluctuations on the
Company's floating rate $1,100,000 term loan. In fiscal 2008 the Company recorded the fair value of these contracts in the balance sheet, with the offset to other comprehensive loss. In
fiscal 2009 through fiscal 2011 the fair value has been recognized in current earnings, as the cash flow hedge has been de-designated. The contract requires monthly settlements of the
difference between the amounts to be received and paid under the agreement, the amount of which is recognized in current earnings as interest expense. See Note 4 for additional
information.
Stock-Based Compensation - Stock-based compensation is presented in accordance with the guidance of FASB ASC 718-10-30, Compensation - Stock Compensation. Under the
provisions of FASB ASC 718, stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite
employee service period (generally the vesting period of the grant). See Note 11 for additional information.
Variable Interest Entities - FASB ASC 810-20, Consolidation of Variable Interest and Special-Purpose Entities, can require consolidation of "variable interest entities" (VIEs). Once an
entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. The Company has one franchisee with a note
payable to the Company. This franchisee is a VIE as defined by FASB ASC 810-20, however, the franchisee is the primary beneficiary of this entity, not the Company. Therefore they
are not required to be consolidated under the guidance of FASB ASC 810-20.
Fair Value of Financial Instruments - The Company adopted the provisions of FASB ASC 820, Fair Value Measurements and Disclosures, effective October 1, 2008. FASB ASC 820
defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. See Note 10
for additional information.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation techniques used to measure fair value, as required by Topic 820 of the FASB ASC, must maximize the use of observable inputs and minimize the use of unobservable inputs.
FASB ASC 820 defines three levels of inputs that may be used to measure fair value and requires that the assets or liabilities carried at fair value must be disclosed by the input level
under which they were valued. The input levels defined under FASB ASC 820 are as follows:
Level 1: Quoted market prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than defined in Level 1, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are not corroborated by observable market data.
F-10
Non-controlling Interests
Non-controlling interests are presented in accordance with the provisions of FASB ASC 810, Consolidation. FASB ASC 810 requires non-controlling interests to be presented as a
separate item in the equity section of the consolidated balance sheet. The amount of consolidated net income or loss attributable to non-controlling interests are required to be clearly
presented on the face of the consolidated income statement.
Subsequent Events
The Company follows the provisions of FASB ASC 855, Subsequent Events. FASB ASC 855 establishes the accounting for, and disclosure of, material events that occur after the
balance sheet date but before the financial statements are issued. In general, these events will be recognized if the condition existed at the date of the balance sheet, but will not be
recognized if the condition did not exist at the balance sheet date. Disclosure is required for non-recognized events if required to keep the financial statements from being misleading.
Recent Accounting Pronouncements - There are no current pronouncements that affect the Company.
2. Liquidity:
As of September 30, 2011, we had $847,000 in cash and cash equivalents on hand. We currently plan to use the cash balance and any cash generated from operations for our working
capital needs in fiscal 2012. We believe that we will have sufficient capital to meet our working capital, long term debt obligations and recurring capital expenditure needs in fiscal
2012. Additionally, we may sell or sublease select underperforming company operated restaurants if we believe the realizable asset value is greater than the long term cash flow value
or if the asset does not fit our longer term distribution and location of restaurants.
As of September 30, 2011, we had a working capital deficit of $488,000 due to normal recurring accounts payable and other accrued liabilities.
3. DISCONTINUED OPERATIONS
Discontinued operations are presented in accordance with FASB ASC 205-20, Presentation of Financial Statements. During fiscal 2010 we closed two locations: one dual-branded
restaurant in Commerce City, Colorado in March 2010 and one co-developed restaurant in Denver, Colorado in June 2010. Fixed assets and associated accumulated depreciation of
$406,000 related to the Commerce City location are included in the property and equipment of our condensed consolidated balance sheet. Current and long-term liabilities related to
discontinued operations relate to the future estimated lease obligations of the Commerce City location.
Following is a summary of the costs from discontinued operations for the current and prior year periods:
Results of operations
Future lease obligations, fair value
Asset impairment credits (charges) and
other costs
Income
operations
from discontinued
(loss)
Twelve Months Ended
September 30,
2011
( $5,000 )
( 4,000 )
2010
( $153,000 )
( 143,000 )
31,000
( 294,000 )
$22,000
($590,000 )
With respect to the Commerce City closed location, we have continuing aggregate lease obligations of $670,000 and we have subleased the location for $546,000 in aggregate sublease
income. We have recorded an estimated discounted liability of $96,000 related to this location. We terminated the lease on the Denver location effective February 1, 2011 and no longer
remain liable for any future lease obligations. In the three month period ended March 31, 2011 we reversed the $31,000 accrued lease liability associated with the Denver location.
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4. Debt AND CAPITAL LEASES :
Note payable with PFGI II, LLC with monthly payments of principal and interest
(8.65%, with a 25 year amortization) and a balloon payment of all unpaid principal due
on December 31, 2012. The loan is secured by one Real Property Deed of Trust, four
Leasehold Deeds of Trust and Security Agreements and Assignment of Rents and
Fixture Filings and two Security Agreements and Assignment of Rents and Fixture
Filings related to those six corporate restaurants. The promissory note constitutes a
line of credit which may be repaid but not re-advanced, at any time.
Note payable with Wells Fargo Bank, NA with scheduled payments of principal and
interest (prime rate less .5%) due monthly, additional principal payments of $7,500 due
monthly through January 2012 and the final payment due in November 2014. The loan
is secured by four Security Agreements related to the furniture, fixtures and equipment
of the four corporate restaurants.
Capital signage lease with Yesco, LLC with payments of principal and interest (8%)
due monthly and the final payment due in August 2016.
Note payable with Ally Financial with payments of principal and interest (1.9%) due
monthly and the final payment due in July 2015. The loan is secured by a 2011 GMC
utility van.
Unamortized note discount related to warrants issued in connection with the above note
payable with PFGI II, LLC.
Less current portion
Long term portion
$1,645,000
529,000
90,000
31,000
( 33,000 )
2,262,000
( 195,000 )
$2,067,000
In conjunction with the Wells Fargo Bank term loan, the Company entered into a variable to fixed interest rate swap agreement with Wells Fargo Bank effective May 9, 2007, with a
notional amount of $1,100,000, a pay rate of 7.77% and a receive rate based on the bank prime rate less .50%. The swap agreement has an eight-year term and has the effect of
normalizing the effective interest rate at 7.77%. As of September 30, 2011, the fair value of the contract was a loss of $57,000. The unrealized loss has been recorded in interest expense.
As of September 30, 2011, principal payments on debt become due as follows:
Years Ending
September 30,
2012
2013
2014
2015
2016
$195,000
1,797,000
196,000
55,000
19,000
$2,262,000
As previously disclosed in the Company's current report on Form 8-K filed December 17, 2010, we entered into a new Credit and Loan Agreement with Wells Fargo Bank that modified
the loan covenants and provided additional collateral to Wells Fargo for the remaining loan balance of $529,000. As of September 30, 2011 we were in compliance with all of the
modified loan covenants.
As previously disclosed in the Company's current report on Form 8-K filed December 9, 2011, we received notice from Wells Fargo Bank, N.A. (the "Bank") that the Company is
currently not in compliance with certain covenants under the Amended and Restated Credit Agreement dated December 10, 2010 (the "Credit Agreement"), including covenants requiring
that the Company's tangible net worth not be less than $2,500,000 at any time and that the Company deliver certain landlord's disclaimer and consent documents to the Bank. As
previously disclosed in the Company's current report on Form 8-K filed December 27, 2011 we entered into a First Amendment to the Amended Credit Agreement and Waiver of
Defaults and a Second Amended and Restated Term Note with Wells Fargo Bank (together, the "Amendments") that
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waived the current covenant defaults and modified the loan covenants and note terms. The Amendments are conditioned upon the closing of the sale of the Littleton restaurant described
above and provide for a prepayment of $100,000 in principal from the proceeds from the sale of the Littleton, Colorado restaurant, the release of collateral associated with that restaurant,
the waiver of certain other collateral requirements, and a revision to the amortization and maturity date of the remaining loan balance as of January 2, 2012 of $349,000 to December 31,
2013. There was no change to the interest rate of the loan.
5. Other Accrued Liabilities :
Other accrued liabilities consist of the following at September 30, 2011:
Wages and other employee
benefits
Taxes, other than income tax
Discontinued operations
Other
$238,000
462,000
14,000
178,000
$892,000
6. Commitments and Contingencies :
The Company's office space, and the land and buildings related to the Drive Thru restaurant facilities are classified as operating leases and expire over the next 13 years. Some leases
contain escalation clauses over the lives of the leases. Most of the leases contain one to three five-year renewal options at the end of the initial term. Certain leases include provisions for
additional contingent rent payments if sales volumes exceed specified levels. The Company paid no material contingent rentals during fiscal 2011 and 2010.
Following is a summary of operating lease activities:
Year Ended
September 30,2011
Minimum rentals
Less sublease
rentals
Net rent paid
$2,081,000
( 355,000 )
$1,726,000
As of September 30, 2011, future minimum rental commitments required under the Company's operating leases that have initial or remaining noncancellable lease terms in excess of one
year are as follows:
Years Ending
September 30,
2012
2013
2014
2015
2016
Thereafter
Less sublease
rentals
$1,918,000
1,926,000
1,723,000
1,301,000
1,133,000
5,587,000
13,588,000
( 2,410,000 )
$11,178,000
The Company is contingently liable on several ground leases that have been subleased or assigned to franchisees. The subleased and assigned leases expire between 2015 and 2024.
Currently we have not been notified nor are we aware of any leases in default by the franchisees, however there can be no assurance that there will not be such defaults in the future which
could have a material effect on our future operating results.
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7. Financing Transactions :
Wells Fargo Bank N.A.
In May 2007 we borrowed $1,100,000 from Wells Fargo Bank (the "Bank") under a note payable with an eight year term with a floating interest rate at .50% below prime. We
simultaneously entered into an interest rate swap transaction with Wells Fargo Bank for the full $1,100,000 with a fixed interest rate of 7.77% for the full eight year term coinciding with
the note payable. As previously disclosed in the Company's current report on Form 8-K filed December 17, 2010, we entered into a new Credit and Loan Agreement that modified the
loan covenants and provided additional collateral to Wells Fargo for the remaining loan balance of $528,552. In addition to the normal recurring principal payments we made additional
principal payments in fiscal 2011 of $67,500 from the proceeds of the sale of two company-owned restaurants in Colorado Springs, Colorado to further reduce the note payable thereby
reducing certain collateral under the modified Credit and Loan Agreement.
On December 27, 2011, Good Times Restaurants Inc. and its subsidiary Good Times Drive Thru Inc. (together, the "Company") entered into a First Amendment To Amended and
Restated Credit Agreement and Waiver of Defaults and a Second Amended and Restated Term Note in the principal amount of $470,874.00 (together the "Amendments") with the Bank.
The Amendments are conditional upon the closing of the sale of the Littleton restaurant described under Recent Events and provide for a reduction in the principal amount of the loan by
an additional $100,000 from the proceeds of that sale , the release of collateral associated with that restaurant and a modification to the repayment terms and maturity date of the loan to
December 31, 2013. The Amendments waive the current covenant defaults asserted by the Bank and modify certain financial covenants in the Credit Agreement requiring the Company
to have a Net Worth not less than $2,500,000 as of December 31, 2012 and thereafter and an EBITDA Coverage Ratio not less than (i) 0.30 to 1.00 as of the end of the third quarter
ending June 30, 2012, (ii) 0.70 to 1.00 as of the end of the fiscal year ending September 30, 2012, and (iii) .90 to 1.00 as of the end of each fiscal quarter thereafter, determined on a
rolling 4-quarter basis. The Company is required to prepay the Term Loan up to the full outstanding principal balance of the note (in addition to any and all other obligations due to Bank
including the Interest Rate Swap) upon the sale of any stock or other equity interest in the Company. There was not any change to the interest rate or fees payable to the Bank under the
Amendment and the re-amortized loan balance will be $349,000 as of January 2, 2012. Repayment of the loan is secured by equipment in various restaurants owned by the Company.
PFGI II, LLC
In July 2008, we entered into a $2,500,000 promissory note with an unrelated third party (PFGI II, LLC) and amended that note on April 20, 2009 extending the maturity to July 10, 2010.
Effective January 2, 2010, the Company entered into an agreement to amend its loan with PFGI II LLC. The maturity date was extended to December 31, 2012, the interest rate was
increased to 8.65% and monthly payments of principal and interest are payable beginning January 31, 2010, based upon a 25 year amortization prior to maturity. In connection with the
agreement, the Company issued a three-year warrant dated January 2, 2010 to PFGI II, LLC which provides that PFGI II, LLC may at any time from January 2, 2010 until December 31,
2012 purchase up to 37,537 shares of the Company's common stock at an exercise price of $3.33 per share. The number of shares purchasable upon exercise of the warrant and the
exercise price are subject to customary anti-dilution adjustments upon the occurrence of any stock dividends, stock splits, reverse stock splits, recapitalizations, reclassifications, stock
combinations or similar events. The fair value of the warrant issued to PFGI II, LLC was determined to be $79,000 with the following assumptions; 1) risk free interest rate of 1.7%, 2) an
expected life of 3 years, and 3) an expected dividend yield of zero. The fair value of $79,000 was charged to the note discount and credited to Additional Paid in Capital. The note
discount is being amortized over the term of thirty six months and charged to interest expense.
The promissory note originally constituted a revolving line-of-credit for the development of new restaurants which was advanced and repaid on a monthly basis from time to time. The
promissory note now constitutes a term loan with monthly payments of principal and interest. The loan is secured by separate leasehold deeds of trust and security agreements related to
six company-owned restaurants and a first deed of trust on one real property funded by the line of credit. The total outstanding balance on the promissory note was $1,645,000 at
September 30, 2011. Of the $1,645,000 outstanding balance, $1,595,000 is related to the construction of one company-owned restaurant in Firestone, Colorado that opened in October
2008. On December 5, 2010 the company sold a parcel of land in Aurora, Colorado and used approximately $812,000 of the net proceeds to reduce the loan balance.
F-14
Golden Bridge, LLC
On April 20, 2009 as reported on Form 8-K, the Company entered into a loan agreement with Golden Bridge, LLC ("Golden Bridge"), pursuant to which Golden Bridge made a loan of
$185,000 (the "Golden Bridge Loan") to GTDT to be used for restaurant marketing and other working capital costs. Eric Reinhard, Ron Goodson, David Grissen, Richard Stark, and
Alan Teran, who were all members of the Company's Board of Directors at the time of the transaction and stockholders of the Company, are the sole members of Golden Bridge. The
loan was repaid in full on December 13, 2010 from the proceeds of the SII Investment Transaction (see "SII Investment Transaction" below).
In connection with the Golden Bridge Loan, the Company issued a three-year warrant dated April 20, 2009 to Golden Bridge which provides that Golden Bridge may at any time from
April 20, 2009 until April 20, 2012 purchase up to 30,833 shares of the Company's common stock at an exercise price of $3.45 per share. The number of shares purchasable upon
exercise of the warrant and the exercise price are subject to customary anti-dilution adjustments upon the occurrence of any stock dividends, stock splits, reverse stock splits,
recapitalizations, reclassifications, stock combinations or similar events. The fair value of the warrant issued to Golden Bridge was determined to be $42,000. The note discount was
amortized over fourteen months and charged to interest expense.
W. Capital and John T. McDonald
On February 1, 2010, the Company entered into a loan agreement with W Capital, Inc. ("W Capital"), John T. McDonald ("McDonald") and Golden Bridge, pursuant to which the lenders
made loans totaling $200,000, with up to an additional $200,000 available through April 30, 2010, to be used for restaurant marketing and other working capital uses of GTDT. As set
forth below, the loan agreement was subsequently amended as of April 1, 2010 to remove Golden Bridge as a lender and to replace it with additional loans from W Capital and
McDonald. On December 13, 2010, the outstanding principal amount of the Bridge Loans was paid in full from the proceeds of the SII Investment Transaction, and accrued interest on
the Bridge Loans was converted into 26,477 shares of Common Stock.
In connection with the Bridge Loans, the Company issued warrants dated February 1, 2010 to W Capital and McDonald which provide that the lenders may at any time from February 1,
2010 until two years from the date of repayment or conversion of the Bridge Loans purchase up to an aggregate of 16,667 shares of the Company's Common Stock at an exercise price of
25% less than the average price of the Company's common stock during the 20 days prior to the exercise date, provided, however, that the exercise price shall not be below $2.25 per
share nor above $3.24 per share. Pursuant to the terms of the loan agreement, because the Bridge Loans were not repaid prior to August 1, 2010, the Company issued warrants to W
Capital and McDonald for the purchase of 16,667 additional shares of the Company's Common Stock upon the same terms as the initial warrants. The number of shares purchasable upon
exercise of the warrants issued to W Capital and McDonald and the exercise price are subject to customary anti-dilution adjustments upon the occurrence of any stock dividends, stock
splits, reverse stock splits, recapitalizations, reclassifications, stock combinations or similar events. The warrants will expire on December 12, 2012.
The fair value of the warrants issued February 1, 2010 was determined to be $38,000 with the following assumptions: 1) risk free interest rate of 1.41%, 2) an expected life of 2.5 years,
and 3) an expected dividend yield of zero. The fair value of $38,000 was charged to the note discount and credited to Additional Paid in Capital. The note discount was amortized over the
term of seven months and charged to interest expense.
The intrinsic value of the embedded beneficial conversion feature of the Bridge Loans was determined to be $161,000. The intrinsic value of $161,000 was charged to the note discount
and credited to Additional Paid in Capital. The note discount was amortized over the term of seven months and charged to interest expense.
The fair value of the warrants issued August 1, 2010 was determined to be $36,000 with the following assumptions: 1) risk free interest rate of .70%, 2) an expected life of 2.4 years, and
3) an expected dividend yield of zero. The fair value of $36,000 was charged to the note discount and credited to Additional Paid in Capital. The note discount was amortized over the
term of five months and charged to interest expense.
SII Investment Transaction
On October 29, 2010, the Company and SII entered into the Purchase Agreement, pursuant to which the Company agreed to sell, and SII agreed to purchase, 1,400,000 Shares of
Common Stock at a purchase price of $1.50 per share, or an aggregate purchase price of $2,100,000. The Purchase Agreement was amended on December 13, 2010. On December 13,
2010, the Company and SII completed the SII Investment Transaction through the issuance and sale of the Shares to SII.
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On December 13, 2010, the Company and SII also entered into a Registration Rights Agreement, pursuant to which the Company granted SII certain registration rights with respect to
resale of the Shares. As a result of the completion of the SII Investment Transaction, SII became the beneficial owner of approximately 51.4 percent of the Company's outstanding
Common Stock.
The Purchase Agreement provides that for so long as SII holds more than 50 percent of our outstanding common stock, (i) our Board of Directors shall consist of seven members, and (ii)
SII will have the right to designate four members of our Board. In addition, the Purchase Agreement provides that for a period of three years following the Closing, as long as SII
continues to own at least 80 percent of its Common Stock acquired, SII will have a right of first refusal to purchase additional securities which are offered and sold by the Company for
the purpose of maintaining its percentage interest in the Company.
The proceeds from the SII Investment Transaction were used to pay approximately $288,000 of expenses related to the transaction, repay $585,000 in short term loans, reduce accrued
liabilities by $200,000, reduce accounts payable by approximately $150,000 and the balance going to increase the Company's working capital.
8. Income Taxes :
Deferred tax assets (liabilities) are comprised of the following at September 30:
2011
2010
Current
Long Term
Current
Long Term
Deferred assets (liabilities):
Tax effect of net operating loss
carry-forward (includes $12,000 of
charitable carry-forward)
Partnership basis difference
Deferred revenue
Property and equipment basis
differences
Other accrued liability difference
Net deferred tax assets
Less valuation allowance*
Net deferred tax assets
$ -
-
-
$3,128,000 $ -
-
-
147,000
126,000
$3,047,000
173,000
160,000
-
63,000
63,000
( 63,000 )
$ -
339,000
43,000
3,783,000
( 3,783,000 )
-
90,000
90,000
( 90,000 )
$ - $ -
286,000
41,000
3,707,000
( 3,707,000 )
$ -
* The valuation allowance increased by $49,000 during the year ended September 30, 2011.
The Company has net operating loss carry-forwards of approximately $8,196,000 for income tax purposes which expire from 2012 through 2031. The use of these net operating loss
carry-forwards may be restricted due to changes in ownership.
Total income tax expense for the years ended 2011 and 2010 differed from the amounts computed by applying the U.S. Federal statutory tax rates to pre-tax income as follows:
Total expense (benefit) computed by applying the U.S. Statutory
rate (35%)
State income tax, net of federal tax benefit
Effect of change in valuation allowance
Permanent differences
Expiration of net operating loss carry-forward
Other
Provision for income taxes
2011
2010
$( 355,000 ) $( 1,026,000 )
( 88,000 )
989,000
30,000
-
95,000
$ -
( 31,000 )
49,000
22,000
312,000
3,000
$ -
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9. Related Parties :
The Erie County Investment Company (owner of 99% of The Bailey Company) is a holder of our common stock and has certain contractual rights to elect members of the Company's
Board of Directors under the Series B Convertible Preferred Stock Agreements entered into in February, 2005.
The Company leases office space from The Bailey Company under a lease agreement which expired in September 2011 and is currently leasing the space on a month to month basis.
Rent paid to them in fiscal 2011 and 2010 for office space was $55,000 and $55,000, respectively.
The Bailey Company is also the owner of one franchised Good Times Drive Thru restaurant which is located in Loveland, Colorado and was the owner of one franchised restaurant in
Thornton, Colorado which was closed in October 2009. The Bailey Company has entered into two franchise and management agreements with us. Franchise royalties and management
fees paid under those agreements totaled approximately $53,000 and $50,000 for the fiscal years ending September 30, 2011 and 2010, respectively. Amounts due from The Bailey
Company related to these agreements at September 30, 2011 and 2010 were $16,000 and $12,000, respectively.
Total interest and commitment fees paid to Golden Bridge, LLC under their agreement were approximately $4,000 and $18,000 for the fiscal years ending September 30, 2011 and 2010,
respectively. See Note 8 above for the terms of the loan.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table summarizes financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2011:
Level 2:
Interest Rate Swap liability:
Balance at September 30,
2010
Balance at September 30,
2011
Net change
$84,000
$57,000
$27,000
The unrealized gain for the fiscal year ended September 30, 2011 of $27,000 is reported in the Condensed Consolidated Statement of Operations. There were no transfers in or out of
Level 3 for the twelve month period ending September 30, 2011.
11. Stockholders' Equity :
Non-controlling Interest - Drive Thru is currently the general partner of one limited partnership that was formed to develop Drive Thru restaurants and Drive Thru sold their limited
partner interest in one restaurant in June 2010. Limited partner contributions have been used to construct new restaurants. Drive Thru, as a general partner, generally receives an
allocation of approximately 51% of the profit and losses and a fee for its management services. The equity interest of the unrelated limited partner is shown on the accompanying
consolidated balance sheet in the stockholders equity section as a non-controlling interest, and the limited partner's share of the net income or loss in the partnership is shown as non-
controlling interest income or expense in the accompanying consolidated statement of operations.
Stock Transaction - On December 13, 2010 the company completed a stock sale of 1,400,000 shares of Common Stock, par value $.001, at a price of $1.50 per share to one investor.
On December 13, 2010 the company received Board of Directors and Shareholder approval to effect a one-for-three reverse stock split of its Common Stock no later than December 31,
2010. The reverse stock split was effected on December 31, 2010. Immediately prior to the reverse stock split the company had 8,177,989 of Common Stock outstanding and immediately
following the reverse split the outstanding shares were approximately 2,725,996 (subsequently 218 shares have been issued for rounding of fractional shares resulting from the reverse
split).
Preferred Stock - The Company has the authority to issue 5,000,000 shares of preferred stock. The Board of Directors has the authority to issue such preferred shares in series and
determine the rights and preferences of the shares as may be determined by the Board of Directors.
F-17
Common Stock Dividend Restrictions - As long as at least two-thirds of the shares of common stock into which the Series B Preferred Stock was converted remains held by the former
holders of such converted Series B Preferred Stock, without the written consent or affirmative vote of the holders of three-quarters of the then outstanding votes of the shares of the Series
B Preferred Stock and the shares of the common stock, the Company cannot institute any payment of cash dividends or other distributions on any shares of common stock.
Stock Option Plans - The Company has an Omnibus Equity Incentive Compensation Plan (the "2008 Plan"), approved by shareholders in fiscal 2008, which is the successor equity
compensation plan to the Company's 2001 Stock Option Plan (the "2001 Plan"). As of September 30, 2011, 17,333 shares were available for future grants of nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and stock-based awards.
The 2008 Plan serves as the successor to our 2001 Plan, as amended (the "Predecessor Plan"), and no further awards shall be made under the Predecessor Plan from and after the effective
date of the 2008 Plan. All outstanding awards under the Predecessor Plan immediately prior to the effective date of the 2008 Plan shall be incorporated into the 2008 Plan and shall
accordingly be treated as awards under the 2008 Plan. However, each such award shall continue to be governed solely by the terms and conditions of the instrument evidencing such
grant or issuance, and, except as otherwise expressly provided in the 2008 Plan or by the Committee that administers the 2008 Plan, no provision of the 2008 Plan shall affect or otherwise
modify the rights or obligations of holders of such incorporated awards.
Following the guidance of FASB ASC 718-10-30, Compensation - Stock Compensation, stock-based compensation is measured at the grant date, based on the calculated fair value of the
award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant).
The Company measures the compensation cost associated with share-based payments by estimating the fair value of stock options as of the grant date using the Black-Scholes option
pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the
Company's stock options granted during fiscal 2011. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive
equity awards.
Net loss for the fiscal years ended September 30, 2011 and 2010 includes $61,000 and $88,000, respectively, of compensation costs related to our stock-based compensation
arrangements.
During the fiscal year ended September 30, 2011, we granted 4,000 non-statutory stock options and 53,233 incentive stock options with exercise prices of $1.56. The per-share weighted
average fair value was $1.26 for both the non-statutory stock option grants and incentive stock option grants.
In addition to the exercise and grant date prices of the awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the
following table:
Incentive
Non-Statutory
Expected term (years)
Expected volatility
Risk-free interest rate
Expected dividends
Stock Options
6.5
98.5%
2.46%
0
Stock Options
6.7
97.4%
2.52%
0
We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is
based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate
that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.
FASB ASC 718-10-30 requires the cash flows resulting from the tax benefits for tax deductions in excess of the compensation expense recorded for those options (excess tax benefits) to
be classified as financing cash flows. These excess tax benefits were $0 for the fiscal years ended September 30, 2011 and 2010.
F-18
A summary of stock option activity under our share-based compensation plan for the fiscal year ended September 30, 2011 is presented in the following table: (The numbers of options
and the exercise prices shown in this table have been adjusted to effect the one for three reverse stock split that occurred on December 31, 2010.)
Weighted Average
Weighted
Average
Remaining
Contractual
Options
Exercise Price
Life (Yrs.)
Aggregate
Intrinsic
Value
Outstanding-beg of
year
Granted
Exercised
Forfeited
Expired
Outstanding Sept 30,
2011
Exercisable Sept 30,
2011
130,027
57,233
0
( 20,038 )
( 1,200 )
$9.89
$1.56
$11.28
$4.14
166,022
$6.89
80,153
$11.46
6.0
3.2
$0
$0
As of September 30, 2011, the total remaining unrecognized compensation cost related to unvested stock-based arrangements was $54,000 and is expected to be recognized over a
weighted average period of 2.21 years.
The total intrinsic value of stock options exercised during the fiscal year ended September 30, 2011 was $0. Cash received from stock option exercises for the fiscal year ended
September 30, 2011 was $0.
12. Retirement Plan :
The Company has a 401(k) profit sharing plan (the "Plan"). Eligible employees may make voluntary contributions to the Plan, which may be matched by the Company, in an amount
equal to 25% of the employee's contribution up to 6% of their compensation. The amount of employee contributions is limited as specified in the Plan. The Company may, at its
discretion, make additional contributions to the Plan or change the matching percentage. The Company did not make any matching contributions in fiscal 2011 or fiscal 2010.
13. Subsequent Events :
We entered into a purchase and sale agreement for the sale of one company-owned restaurant in Littleton, Colorado that was effective October 11, 2011. We anticipate the sale to close
prior to December 31, 2011 with estimated net proceeds of $310,000.
As previously disclosed in the Company's current report on Form 8-K filed December 9, 2011, we received notice from Wells Fargo Bank, N.A. (the "Bank") that the Company is
currently not in compliance with certain covenants under the Amended and Restated Credit Agreement dated December 10, 2010 (the "Credit Agreement"), including covenants requiring
that the Company's tangible net worth not be less than $2,500,000 at any time and that the Company deliver certain landlord's disclaimer and consent documents to the Bank. As
previously disclosed in the Company's current report on Form 8-K filed December 27, 2011 we entered into a First Amendment to the Amended Credit Agreement and Waiver of
Defaults and a Second Amended and Restated Term Note with Wells Fargo Bank (together, the "Amendments") that waived the current covenant defaults and modified the loan
covenants and note terms. The Amendments are conditioned upon the closing of the sale of the Littleton restaurant described above and provide for a prepayment of $100,000 in
principal from the proceeds from the sale of the Littleton, Colorado restaurant, the release of collateral associated with that restaurant, the waiver of certain other collateral requirements,
and a revision to the amortization and maturity date of the remaining loan balance as of January 2, 2012 of $349,000 to December 31, 2013. There was no change to the interest rate of
the loan.
F-19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
During the two most recent fiscal years, Good Times Restaurants has not had any changes in or disagreements with its independent accountants on matters of accounting or financial
disclosure.
ITEM 9A. CONTROLS AND PROCEDURES.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Based on an evaluation of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the Company's fiscal year ended September 30, 2011, the Company's Chief
Executive Officer and Controller (its principal executive officer and principal financial officer, respectively) have concluded that the Company's disclosure controls and procedures were
effective.
Management's Report on Internal Control Over Financial Reporting: We are responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended). We maintain a system of internal controls that is designed to provide reasonable
assurance in a cost-effective manner as to the fair and reliable preparation and presentation of the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation.
We conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2011. In making this evaluation, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. This evaluation included a review of the
documentation of controls, evaluation of the design effectiveness of controls and a conclusion on this evaluation. We have concluded that, as of September 30, 2011, the Company's
internal control over financial reporting was effective based on these criteria.
This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report
was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this
Annual Report.
Changes in Internal Control over Financial Reporting: There have been no significant changes in the Company's internal control over financial reporting that occurred during the
Company's fiscal quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Nothing to report.
28
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .
PART III
Directors: The directors of Good Times Restaurants are as follows:
Geoffrey R. Bailey, age 59, has served as a Good Times director since 1996 and is a member of the Audit Committee. He is also a director of The Erie County Investment Co., which
owns 99% of The Bailey Company. The principal business of The Bailey Company owns and operating 58 Arby's restaurants as a franchisee, and The Bailey Company has also been a
franchisee and joint venture partner of Good Times Restaurants since 1987. Mr. Bailey joined The Erie County Investment Co. in 1979. Mr. Bailey is a graduate of the University of
Denver with a Bachelor's Degree in Business Administration.
David L. Dobbin , age 50, was appointed as a Good Times director effective upon the closing of the SII Investment Transaction on December 13, 2010. He was also appointed as the
Chairman of the Board effective as of December 13, 2010. In addition, he currently serves as Chairman of the Board of Small Island Investments Ltd., the Company's strategic investor
(2010-Present). He also serves as Chairman of the Boards of Terra Nova Pub Group Ltd., its subsidiaries and affiliates (2007-Present) and Welaptega Marine Ltd. (2008-Present), a
leading supplier of offshore mooring inspection systems, companies controlled by Mr. Dobbin through Repechage Investments Limited, an investment company formed under the laws of
Canada that holds investments in the transportation, service, real estate and hospitality sectors (2001-Present). Previously, Mr. Dobbin served in several capacities with CHC Helicopter
Corporation, an offshore helicopter services provider, and led Canadian Ocean Resource Associates Inc., a consulting firm specializing in best practice reviews, institutional support and
public/private partnerships. Mr. Dobbin holds a Bachelor of Commerce from Memorial University of Newfoundland.
Gary J. Heller , age 44, was appointed as a Good Times director effective upon the closing of the SII Investment Transaction on December 13, 2010. He is the chairman of the
Compensation Committee. In addition, he currently serves as Secretary and a Director of Elephant & Castle Group Inc. (2007-Present), Secretary and a Manager of Massachusetts Pub
Group LLC (2008-Present), and Executive Vice President of Terra Nova Pub Group Ltd. (2009-Present). Prior to entering the restaurant industry in 2007, Mr. Heller spent 16 years as an
investment banker, including serving as a Managing Director of FTI Capital Advisors, LLC (2002-2006) and a Director of Andersen Corporate Finance LLC. Mr. Heller holds a BA in
Economics from the University of Pennsylvania and an MBA in Finance from New York University.
Boyd E. Hoback , age 56, has served as a Good Times director since 1992 and is President and Chief Executive Officer of Good Times Restaurants, a position which he has held since
December 1992, and he has been in the restaurant business since the age of 16. Mr. Hoback has been a vital part of the development of Good Times to a 52-restaurant chain and has been
involved in developing all areas of the Company. Mr. Hoback is an honors graduate of the University of Colorado in finance.
Keith A. Radford , age 42, was appointed as a Good Times director effective upon the closing of the SII Investment Transaction on December 13, 2010. He is the chairman of the Audit
Committee. In addition, he currently serves as Chief Financial Officer of Terra Nova Pub Group Ltd., Elephant & Castle Group Inc. and Massachusetts Pub Group LLC (2009-Present).
Previously Mr. Radford served as a Director and Vice President of subsidiaries within AKER Solutions, a leading global provider of engineering and construction services, technology
products and integrated solutions (2002-2008). In addition he has over eight years of experience in public practice providing auditing, taxation and business consulting services. Mr.
Radford holds a Bachelor of Commerce degree from Memorial University of Newfoundland and Labrador and is a Chartered Accountant.
Eric W. Reinhard , age 52, has served as a Good Times director since 2005. He resigned as Chairman of the Board, a position he held since 2005, effective as of December 13, 2010. He
is currently a member of the Compensation Committee. Mr. Reinhard also serves as President of the Pepsi Cola Bottler's Association, a beverage association management and consulting
association and a position he has held since 2006. Prior to June 2004 he was the General Manager for the Pepsi Bottling Group's Great West Business Unit. While in this role, Mr.
Reinhard was also a member of the Pepsi Bottling Group's Chairman's Operating Council, a member of the Food Service Strategic Planning Committee, and a member of The Dr. Pepper
Bottler Marketing Committee. Mr. Reinhard joined Pepsi Cola in 1984 after four years with The Proctor & Gamble Distributing Company. Since 1984 he has held several field and
headquarters positions including Vice President/General Manager Pepsi-Lipton Tea partnership (JV), General Manager Mid-Atlantic business Unit, Area Vice President Retail Channels,
Vice President On-Premise Operations and Area Vice President of Franchise Operations.
29
Mr. Reinhard holds a BA from Michigan State University and has completed the Executive Business Program at the University of Michigan.
There are no family relationships among the directors. The board has determined that of the current directors Geoffrey R. Bailey, Eric W. Reinhard, David L. Dobbin, Gary J. Heller, and
Keith A. Radford are independent directors under the NASDAQ listing standards.
Geoffrey R. Bailey was originally elected to the Board of Directors pursuant to contractual board representation rights granted to The Bailey Company in connection with its investment
in shares of our Series A Convertible Preferred Stock in 1996. Prior to December 13, 2010, Mr. Bailey continued to serve on the board pursuant to contractual board representation rights
held by The Bailey Company and its affiliates ("The Bailey Group") in connection with our Series B Convertible Preferred Stock financing in February 2005, whereby The Bailey Group
was entitled to elect three members of our Board of Directors, including two independent directors.
Prior to December 13, 2010, Richard J. Stark and Alan A. Teran were the other two members of our Board designated by The Bailey Group under the above provisions. The other
investors in our Series B Convertible Preferred Stock financing also had board representation rights whereby they were entitled to elect three members of our Board. Eric W. Reinhard
was originally elected in 2005 and has continued to serve on our Board pursuant to these provisions. Prior to December 13, 2010, Ron Goodson and David Grissen were the other two
members of our Board designated by the other Series B investors under these provisions. In connection with the SII Investment Transaction, Messrs. Stark, Teran, Goodson and Grissen
resigned from our Board effective as of December 13, 2010. In addition, the Series B Investors agreed to cancel their Board designation rights under the Series B Convertible Preferred
Stock financing documents and to accept in lieu thereof the designation rights set forth in the Purchase Agreement with SII.
The SII Purchase Agreement provides that so long as SII holds more than 50% of the Company's outstanding Common Stock, (i) the Board shall consist of seven directors, and (ii) SII
shall have the right to designate four members of the Board. In addition, the Purchase Agreement provides that SII shall vote its shares in any election of directors in favor of one person
designated by The Bailey Group and one person designated by Eric W. Reinhard, in addition to SII's four director designees. If either The Bailey Group or Reinhard ceases to own at
least 600,000 shares of the Company's Common Stock (adjusted for any stock splits, reverse splits or similar capital stock transactions), then the foregoing designation right will cease,
and SII has agreed to vote its shares in any election of directors in favor of a person, other than an SII designee, who receives the majority of votes of holders of Common Stock other
than the Investor. Pursuant to the Purchase Agreement, the Series B investors have agreed to vote their shares in any election of directors in favor of SII's designees.
David L. Dobbin, Gary J. Heller and Keith A. Radford were originally appointed to our Board on December 13, 2010 upon the closing of the SII Investment Transaction, pursuant to SII's
designation rights under the Purchase Agreement. Prior to his resignation on August 10, 2011, John F. Morgan also served as a director of the Company designated by SII. As a result of
the resignation of John F. Morgan, the Board of Directors has exercised its authority to reduce the number of the members of the Board from seven to six and SII has agreed that its right
to designate members of the Board will be reduced from four to three members. Prior to the next meeting of the stockholders of the Company for the election of directors it is the
intention of the Board of Directors to restore the number of the members of the Board to seven at which time SII will again exercise its right to designate four members of the Board.
See Item 13 "Certain relationships and related transactions" for additional discussion of these provisions. There are no other arrangements or understandings between any current director
and any other person under which that dire ctor was elected or nominated.
Nominee selection process : Our Board of Directors as a whole acts as the nominating committee for the selection of nominees for election as directors. We do not have a separate
standing nominating committee since we require that our director nominees be approved as nominees by a majority of our independent directors. The Board will consider suggestions by
stockholders for possible future nominees for election as directors at the next annual meeting when the suggestion is delivered in writing to the corporate secretary of Good Times
Restaurants by April 15 of the year immediately preceding the annual meeting. No request for a recommended nominee was made by the August 15, 2011 deadline by any stockholder or
group of stockholders with beneficial ownership of more than 5% of the Company's common stock as indicated in a Schedule 13D or 13G.
30
The Board selects each nominee, subject to contractual nominee designation and election rights held by certain stockholders, as discussed below, based on the nominee's skills,
achievements and experience, with the objective that the Board as a whole should have broad and relevant experience in high policymaking levels in business and a commitment to
representing the long-term interests of the stockholders. The Board believes that each nominee should have experience in positions of responsibility and leadership, an understanding of
our business environment and a reputation for integrity.
The Board evaluates each potential nominee individually and in the context of the Board as a whole. The objective is to recommend a group that will effectively contribute to our long-
term success and represent stockholder interests. In determining whether to recommend a director for re-election, the Board also considers the director's past attendance at meetings and
participation in and contributions to the activities of the Board.
When seeking candidates for director, the Board solicits suggestions from incumbent directors, management, stockholders or others. The Board does not have a charter for the
nominating process.
The Company does not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Board strives to nominate directors with a variety of
complementary skills so that, as a group, the Board will possess the appropriate talent, skills, and expertise to oversee the Company's business.
Communication with the directors : The Board welcomes questions or comments about us and our operations. Those interested may contact the Board as a whole or any one or more
specified individual directors by sending a letter to the intended recipients' attention in care of Good Times Restaurants Inc., Corporate Secretary, 601 Corporate Circle, Golden, CO
80401. All such communications other than commercial advertisements will be forwarded to the appropriate director or directors for review.
Leadership Structure: The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the
best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. The Board has determined that
separating these roles is in the best interests of the Company's stockholders at this time. This structure ensures a greater role for the independent directors in the oversight of the Company
and active participation of the independent directors in setting agendas and establishing Board priorities and procedures. Further, this structure permits the Chief Executive Officer to
focus on the management of the Company's day-to-day operations.
Risk Oversight: Material risks are identified and prioritized by the Company's management and reported to the Board for oversight. The Board regularly reviews information regarding
the Company's credit, liquidity and operations, as well as the risks associated with each. In addition, the Board continually works, with the input of the Company's executive officers, to
assess and analyze the most likely areas of future risk for the Company.
Board Committees
Audit Committee : The Audit Committee currently consists of Messrs. Radford, Heller and Reinhard, each of whom is an independent director under the applicable NASDAQ listing
standards. The Board has determined that Mr. Radford is an audit committee financial expert, as that term is defined by the SEC rules.
The function of the Audit Committee relates to oversight of the auditors, the auditing, accounting and financial reporting processes and the review of the Company's financial reports and
information. In addition, the functions of this Committee have included, among other things, recommending to the Board the engagement or discharge of independent auditors,
discussing with the auditors their review of the Company's quarterly results and the results of their audit and reviewing the Company's internal accounting controls. The Audit Committee
operates pursuant to a written charter adopted by the Board of Directors. A current copy of the Audit Committee Charter is available on our website at www.goodtimesburgers.com. The
Audit Committee held five meetings during fiscal 2011.
Compensation Committee : The Compensation Committee currently consists of Messrs. Heller, Bailey and Reinhard, each of who is an independent director under the applicable
NASDAQ listing standards. The function of this Committee is to consider and determine all matters relating to the compensation of the President and Chief Executive Officer and other
executive officers, including matters relating to the employment agreements. The Compensation Committee held one meeting during fiscal 2011.
31
The Compensation Committee does not have a charter. The responsibility of the Compensation Committee is to review and approve the compensation and other terms of employment of
our Chief Executive Officer and our other executive officers, including all of the executive officers named in the Summary Compensation Table in Item 11 of Part III of this Form 10-K
(the "Named Executive Officers"). Among its other duties, the Compensation Committee oversees all significant aspects of the Company's compensation plans and benefit programs.
The Compensation Committee annually reviews and approves corporate goals and objectives for the Chief Executive Officer's compensation and evaluates the Chief Executive Officer's
performance in light of those goals and objectives. The Compensation Committee also recommends to the Board of Directors the compensation and benefits for members of the Board of
Directors. The Compensation Committee has also been appointed by the Board of Directors to administer our 2008 Omnibus Equity Incentive Compensation Plan (the "2008 Plan"),
which is the successor equity compensation plan to the Company's 2001 Stock Option Plan (the "2001 Plan"). The Compensation Committee does not delegate any of its authority to
other persons.
In carrying out its duties, the Compensation Committee participates in the design and implementation and ultimately reviews and approves specific compensation programs. The
Compensation Committee reviews and determines the base salaries for the Named Executive Officers, and also approves awards to the Named Executive Officers under the Company's
equity compensation plans.
In determining the amount and form of compensation for Named Executive Officers other than the Chief Executive Officer, the Compensation Committee obtains input from the Chief
Executive Officer regarding the duties, responsibilities and performance of the other executive officers and the results of performance reviews. The Chief Executive Officer also
recommends to the Compensation Committee the base salary levels for all Named Executive Officers and the award levels for all Named Executive Officers under the Company's equity
compensation programs. No Named Executive Officer attends any executive session of the Compensation Committee or is present during final deliberations or determinations of such
Named Executive Officer's compensation. The Chief Executive Officer also provides input with respect to the amount and form of compensation for the members of the Board of
Directors.
The Compensation Committee has the authority to directly engage, at the Company's expense, any compensation consultants or other advisers as it deems necessary to carry out its
responsibilities in determining the amount and form of executive and director compensation. For fiscal 2011, the Compensation Committee did not use the services of a compensation
consultant or other adviser. However, the Compensation Committee has reviewed surveys, reports and other market data against which it has measured the competitiveness of the
Company's compensation programs. In determining the amount and form of executive and director compensation, the Compensation Committee has reviewed and discussed historical
salary information as well as salaries for similar positions at comparable companies.
Directors' meetings and attendance : There were five meetings of the Board of Directors held during the last full fiscal year. No member of the Board of Directors attended fewer than
75% of the board meetings and applicable committee meetings. The annual meeting of shareholders for fiscal 2010 was attended by Messrs. Bailey, Dobbin and Hoback. Messrs. Heller,
Radford and Reinhard were absent.
Directors' compensation : Each non-employee director receives $500 for each Board of Directors meeting attended. Members of the Compensation and Audit Committees generally
each receive $100 per meeting attended. However, where both Compensation and Audit Committee meetings are held at the same gathering, only $100 is paid to directors attending both
committee meetings. Additionally, for the fiscal year ended September 30, 2011, each non-employee director received a non-statutory stock option to acquire 2,000 shares of common
stock at an exercise price of $1.56. Subsequent to the fiscal year end each director received a non-statutory stock option to acquire 5,000 shares of common stock at an exercise price of
$1.31.
Audit Committee Report : Good Times Restaurant's management is responsible for the internal controls and financial reporting process for Good Times Restaurants. The independent
accountants for Good Times Restaurants are responsible for performing an independent audit of the financial statements in accordance with generally accepted auditing standards and to
issue a report on those financial statements. The Audit Committee's responsibility is to monitor and oversee these processes.
In this context, the Audit Committee met with management and the independent accountants to review and discuss the Good Times Restaurants financial statements for the fiscal year
ended September 30, 2011. Management represented to the Audit Committee that the financial statements were prepared in accordance with generally accepted accounting principles,
and the Audit Committee has reviewed and discussed the financial statements with management and the independent accountants.
32
The Audit Committee has discussed with the independent accountants matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees. The Audit Committee has also received the written disclosures and the letter from the independent accountants required by applicable requirements of the Public Company
Accounting Oversight Board regarding the independent accountants' communications with the Audit Committee concerning independence and the Audit Committee discussed with the
independent accountants that firm's independence.
Based on the Audit Committee's review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included
in the Good Times Restaurants Annual Report on Form 10-K for the fiscal year ended September 30, 2011 for filing with the SEC.
Executive officers : The executive officers of Good Times Restaurants are as follows:
Name
Boyd E. Hoback
Susan M. Knutson
Scott G. LeFever
Age
56
53
53
Position
President & CEO
Controller
VP of Operations
Date Began With Company
September 1987
September 1987
September 1987
Boyd E. Hoback. See the description of Mr. Hoback's business experience under "Directors".
Susan M. Knutson has been Controller since 1993 with direct responsibility for overseeing the accounting department, maintaining cash controls, producing budgets, financials and
quarterly and annual reports required to be filed with the Securities and Exchange Commission, acting as the principal financial officer of the Company, and preparing all information for
the annual audit.
Scott G. LeFever has been Vice President of Operations since August 1995, and has been involved in all phases of operations with direct responsibility for restaurant service performance,
personnel and cost controls.
Executive officers do not have fixed terms and serve at the discretion of the Board of Directors. There are no family relationships among the executive officers or directors.
Code of ethics : Good Times Restaurants has adopted a Code of Business Conduct which applies to all directors, officers, employees and franchisees of Good Times Restaurants. The
Code of Business Conduct was filed with the SEC as an exhibit to the Annual Report on Form 10-KSB for the fiscal year ended September 30, 2003.
33
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation: The following table sets forth compensation information for 2011 and 2010 with respect to the named executive officers:
Summary Compensation Table for 2011 and 2010:
Name and
Salary
$
2011 133,000
Principal
Position Year
Boyd E.
Hoback
President
and Chief
Executive
Officer
Scott G.
LeFever
Vice
President
of
Operations
2010 148,000
2011 75,000
2010 90,625
Stock
Awards
$
_
Option
Awards
$ 3
17,816
Bonus
$
_
Non-Equity
Incentive
Plan
Compensation
$
_
Nonqualified
Deferred
Compensation
Earnings $
_
All Other
Compensation
$
16,961 1
Total $
167,777
_
_
29,381
_
_
9,565
_
_
11,645
_
_
_
_
_
_
13,978 1
191,359
12,470 2
97,035
10,580 2
112,850
1 The amount indicated for Mr. Hoback includes an automobile allowance, long-term disability
and personal expenses.
2 The amount indicated for Mr. LeFever includes an automobile allowance and long-term disability.
3 The value of stock option awards shown in this column includes all amounts expensed in the
Company's financial statements in 2010 and 2011 for equity awards in accordance with the
guidance of FASB ASC 718-10-30, Compensation - Stock Compensation, excluding any
estimate for forfeitures. The Company's accounting treatment for, and assumptions made in the
valuations of, equity awards is set forth in Note 1 of the notes to the Company's 2011
consolidated financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2011. There were no option awards re-priced in 2011.
There were no shares of SARs granted during 2011 or 2010 nor has there been any nonqualified deferred compensation paid to any named executive officers during 2011 or 2010. The
Company does not have any plans that provide for specified retirement payments and benefits at, following or in connection with retirement.
34
The following table sets forth information as of September 30, 2011 on all unexercised options previously awarded to the named executive officers:
Outstanding Equity Awards at 2011 Fiscal Year-End
Option Awards
Number of
Securities
Underlying
Unexercised
Options -
Exercisable
(#)
16,667
Number of
Securities
Underlying
Unexercised
Options -
Unexercisable
(#)
_
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
_
1,250
1,300
4,000
2,833
0
0
0
0
420
860
1,917
1,917
0
0
0
0
_
_
_
_
6,333 (1)
9,501 (2)
4,551 (3)
10,647 (4)
_
_
_
_
1,917 (1)
5,669 (2)
1,449 (3)
7,985 (4)
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
Option
Exercise
Price $
Option
Expiration
Date
$5.25 10/01/11
$8.10 10/01/12
$10.80 10/01/13
$9.33 10/01/14
$17.04 10/01/15
$19.14 11/17/16
$4.41 11/14/18
$3.45 11/06/19
$1.56 12/13/20
$8.10 10/01/12
$10.80 10/01/13
$9.33 10/01/14
$17.04 10/01/15
$19.14 11/17/16
$4.41 11/14/18
$3.45 11/06/19
$1.56 12/13/20
Number
of Shares
or Units
of Stock
That
Have
Not
Vested
(#)
_
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
_
Stock Awards
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
_
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares, Units
or Other Rights That
Have Not Vested ($)
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
Name
Boyd E.
Hoback
Scott G.
LeFever
1 The options were granted on November 17, 2006. Assuming continued employment with the Company, the shares under the option
agreements will become exercisable per a vesting schedule which began on November 17, 2007 continuing through November 17, 2010,
whereby options vest per the following schedule: 10% on November 17, 2007; an additional 20% on November 17, 2008; an additional
30% on November 17, 2009; and an additional 40% on November 17, 2010.
2 The options were granted on November 14, 2008. Assuming continued employment with the Company, the shares under the option
agreements will become fully exercisable on November 14, 2011.
3 The options were granted on November 6, 2009. Assuming continued employment with the Company, the shares under the option
agreements will become fully exercisable on November 6, 2012.
4 The options were granted on December 13, 2010. Assuming continued employment with the Company, the shares under the option
agreements will become fully exercisable on December 6, 2013.
(The numbers of options and the exercise prices shown in this table have been adjusted to effect the one for three reverse stock split that occurred on December 31, 2010.)
35
The following table sets forth compensation information for the fiscal year ended September 30, 2011 with respect to directors:
Director Compensation Table for Fiscal Year 2011
Fees
Earned
or Paid
in Cash
($)
2,000
2,000
1,500
1,000
1,500
1,500
_
Name
Geoffrey R.
Bailey
David Dobbin
Gary Heller
Eric W.
Reinhard
Keith Radford
John Morgan 3
Boyd E. Hoback
4
Stock
Awards
($)
Option
Awards
($) 1, 2
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings $
All Other
Compensation
$
Total $
_
_
_
_
_
_
_
840
840
840
840
840
840
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
2,840
2,840
2,340
1,840
2,340
2,340
0
1 The value of stock option awards shown in this column includes all amounts expensed in the
Company's financial statements in 2011 for equity awards in accordance with the guidance of
FASB ASC 718-10-30, Compensation - Stock Compensation, excluding any estimate for
forfeitures. The Company's accounting treatment for, and assumptions made in the valuation of
equity awards are set forth in Note 1 of the notes to the Company's 2011 consolidated financial
statements included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2011. There were no option awards re-priced in 2011.
2 As of September 30, 2011, the following directors held options to purchase the following number
of shares of our common stock: Mr. Bailey 5,333 shares; Mr. Dobbin 667 shares; Mr. Heller 667
shares; Mr. Reinhard 6,167 shares; Mr. Radford 667 shares; and Mr. Hoback 57,081 shares.
3 Mr. Morgan resigned as a director effective as of August 10, 2011. Mr. Morgan's options have
expired and are no longer outstanding.
4 Mr. Hoback is an employee director and does not receive additional fees for service as a member
of the Board.
A description of the standard compensation arrangements (such as fees for committee service, service as chairman of the board or a committee, and meeting attendance) is set forth in the
section entitled "Directors' Compensation" above.
Employment Agreement: Mr. Hoback entered into an employment agreement with us in October 2001 and the terms of the agreement were revised effective October 2007 for
compliance with Section 409A of the Internal Revenue Code. The revised agreement provides for his employment as president and chief executive officer for two years from the date of
the agreement at a minimum salary of $190,000 per year, terminable by us only for cause. The agreement provides for payment of one year's salary and benefits in the event that change
of ownership control results in a termination of his employment or termination other than for cause. This agreement renews automatically unless specifically not renewed by the Board of
Directors. Mr. Hoback's compensation, including salary, expense allowance, bonus and any equity award, is reviewed and set annually by the Compensation Committee. Mr. Hoback's
bonus, when applicable, is based on the Company's achieving certain Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") targets for the year.
As a condition to the closing of the SII Investment Transaction, Mr. Hoback agreed to waive certain rights under the employment agreement which would otherwise have accrued to him
as a result of the change in ownership control of the Company as a result of the SII Investment Transaction, including his right to terminate his employment within one year of the change
in control and trigger the severance payment described above and his right to accelerate the vesting of stock options upon the change in control.
Other Employment Arrangements: Mr. LeFever is employed as an "employee at will" and does not have a written employment agreement. His compensation, including salary,
expense allowance, bonus and any equity awards, is reviewed and approved by the Compensation Committee annually. He participates in a bonus program that is based on both the
company's level of EBITDA for the year and achieving certain operating metrics and sales targets.
36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Ownership of common stock by principal stockholders and management: The following table
shows the beneficial ownership of shares of Good Times Restaurants common stock as of December
15, 2011 by each person known by Good Times Restaurants to be the beneficial owner of more than
five percent of the shares of Good Times Restaurants common stock, each director and each executive
officer named in the Summary Compensation Table, and all directors and executive officers as a
group. The address for the principal stockholders and the Directors and Officers is 601 Corporate
Circle, Golden, CO 80401.
Number of shares
beneficially owned
Percent of
class**
Holder
Principal stockholders
Small Island Investments Ltd
The Bailey Company, LLLP
The Erie County Investment Co.
Directors and Officers
David L. Dobbin, Chairman
Geoffrey R. Bailey, Director
Boyd E. Hoback, Director, President and Chief
Executive Officer
Eric W. Reinhard, Chairman
Scott G. LeFever, Vice President, Operations
Gary H. Heller, Director
Keith A. Radford, Director
All directors and executive officers as a group
(8 persons including all those named above)
1,383,334
273,837 1
338,730 1
1,389,001 2
14,766 3
45,214 4
110,334 5
12,699 6
5,667 7
5,667 8
1,591,550 9
50.74%
10.04%
12.42%
50.84%
*
1.63%
4.01%
*
*
*
55.67%
1
The Bailey Company is 99% owned by The Erie County Investment Co., which should be
deemed the beneficial owner of Good Times Restaurants common stock held by The Bailey
Company. The Erie County Investment Co. also owns 194,680 shares of Good Times
Restaurants common stock in its own name. Geoffrey R. Bailey is a director and executive
officer of The Erie County Investment Co. Geoffrey R. Bailey disclaims beneficial ownership
of the shares of Good Times Restaurants common stock held by The Bailey Company and The
Erie County Investment Co. Because of his ownership of only 26% of the voting shares of The
Erie County Investment Co., Paul T. Bailey disclaims beneficial ownership of the shares of
Good Times Restaurants common stock held by The Bailey Company and The Erie County
Investment Co. Paul T. Bailey is the father of Geoffrey R. Bailey.
2 David L. Dobbin owns 100% of Small Island Investments Ltd. Also includes 5,667 shares
3
4
5
underlying presently exercisable stock options.
Includes 10,333 shares underlying presently exercisable stock options and 4,433 warrants to
purchase stock.
Includes 30,217 shares underlying presently exercisable stock options.
Includes 11,167 shares underlying presently exercisable stock options and 12,500 warrants to
purchase stock
Includes 12,699 shares underlying presently exercisable stock options
Includes 5,667 shares underlying presently exercisable stock options
Includes 5,667 shares underlying presently exercisable stock options
6
7
8
9 Does not include shares held beneficially by The Bailey Company and The Erie County
Investment Co. If those shares were included, the number of shares beneficially held by all
directors and executive officers as a group would be 1,930,280 and the percentage of class
would be 67.52%.
Less than one percent.
Under SEC rules, beneficial ownership includes shares over which the individual or entity has
voting or investment power and any shares which the individual or entity has the right to acquire
within sixty days.
*
The information required by this Item concerning securities authorized for issuance under equity compensation plans is incorporated by reference to the information provided under the
caption "Disclosure with Respect to the Company's Equity Compensation Plan" in Part II - Item 5 - Market for Common Equity and Related Stockholder Matters, included in this Form
10-K.
37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
In February 2005, we issued 413,333 shares of our Series B Convertible Preferred Stock, including 60,000 shares to The Erie County Investment Co., a substantial holder of our common
stock and member of The Bailey Group. In June 2006, we exercised our mandatory conversion rights under the terms of the Series B preferred stock to convert all of those shares into a
total of 413,333 shares of our common stock. The number of shares shown have been adjusted to effect the one for three reverse stock split that occurred on December 31, 2010. Under
the agreements for the Series B preferred stock financing, prior to December 13, 2010, The Bailey Group had the right to elect three directors, provided that two directors meet the
NASDAQ independence standards, and the other investors in the Series B preferred stock financing had the right to elect three directors. As a condition to the closing of the SII
Investment Transaction, the Series B investors agreed to waive the foregoing director designation rights, effective as of December 13, 2010. Going forward, the Series B investors have
certain designation rights as set forth in the Purchase Agreement with SII, which is discussed below.
The SII Purchase Agreement provides that so long as SII holds more than 50% of the Company's outstanding Common Stock, (i) the Board shall consist of seven directors, and (ii) SII
shall have the right to designate four members of the Board. In addition, a provision of the Series B preferred stock financing restricts, for as long as the original investors hold at least
two-thirds of the common stock into which the Series B shares have been converted, our ability to increase the size of the Board of Directors above seven directors unless we first receive
approval from the holders of at least three-fourths of all outstanding shares of common stock.
The SII Purchase Agreement provides that SII shall vote its shares in any election of directors in favor of one person designated by The Bailey Group and one person designated by Eric
W. Reinhard, in addition to SII's four director designees. If either The Bailey Group or Reinhard ceases to own at least 600,000 shares of the Company's Common Stock (adjusted for any
stock splits, reverse splits or similar capital stock transactions), then the foregoing designation right will cease, and SII has agreed to vote its shares in any election of directors in favor of
a person, other than an SII designee, who receives the majority of votes of holders of Common Stock other than SII. Pursuant to the Purchase Agreement, the Series B investors have
agreed to vote their shares in any election of directors in favor of SII's designees.
Keith A. Radford, Gary J. Heller and David L. Dobbin are the current directors designated by SII. Prior to his resignation on August 10, 2011, John F. Morgan also served as a director of
the Company designated by SII. As a result of the resignation of John F. Morgan, the Board of Directors has exercised its authority to reduce the number of the members of the Board
from seven to six and SII has agreed that its right to designate members of the Board will be reduced from four to three members. Prior to the next meeting of the stockholders of the
Company for the election of directors it is the intention of the Board of Directors to restore the number of the members of the Board to seven at which time SII will again exercise its right
to designate four members of the Board.
Geoffrey R. Bailey is the current director designated by The Bailey Group, and Eric W. Reinhard is the current director designated by the other Series B investors. David L. Dobbin is a
director of SII, which holds approximately 50.7% of our outstanding Common Stock as of December 15, 2011. Geoffrey R. Bailey is a director of The Erie County Investment Co.,
which owns 99% of The Bailey Company. The Bailey Company and The Erie County Investment Co. are principal stockholders of us. Geoffrey R. Bailey's father, Paul T. Bailey, is the
principal owner of The Erie County Investment Co.
Our corporate headquarters are located in a building owned by The Bailey Company and in which The Bailey Company also has its corporate headquarters. We currently lease our
executive office space of approximately 3,693 square feet from The Bailey Company for approximately $55,000 per year. The lease expired September 30, 2009 and we continue to lease
the space on a month to month basis.
The Bailey Company is also the owner of one franchised Good Times Drive Thru restaurant which is located in Loveland, Colorado. The Bailey Company has entered into one franchise
and management agreement with us. Franchise royalties and management fees paid under those agreements totaled approximately $53,000 and $50,000 for the fiscal years ending
September 30, 2011 and 2010, respectively.
In April 2009 the Company entered into a loan agreement with Golden Bridge, pursuant to which Golden Bridge made a loan of $185,000 to the Company. This loan was repaid in full
out of the proceeds received by the Company in the SII Investment Transaction. Director Eric Reinhard and former directors Ron Goodson, David Grissen, Richard Stark, and
38
Alan Teran, who are all stockholders of the Company, are the sole members of Golden Bridge, and Eric Reinhard is the sole manager of Golden Bridge. The Company's obtaining of the
loan from Golden Bridge and related transactions were duly approved in advance by the Company's Board of Directors by the affirmative vote of members thereof who did not have an
interest in the transaction. Total interest and commitment fees paid under this agreement were approximately $7,000 and $18,000 for the fiscal years ending September 30, 2011 and
2010, respectively. The amount due to related parties under this agreement that is included in notes payable was $0 at September 30, 2011. See Note 8 to our Consolidated Financial
Statements of Item 8 above for the terms of the loan.
Section 16(a) beneficial ownership reporting compliance: Under Section 16(a) of the Securities Exchange Act of 1934, directors, executive officers and persons who own more than
ten percent of our Common Stock must disclose their initial beneficial ownership of the Common Stock and any changes in that ownership in reports which must be filed with the SEC
and Good Times Restaurants. The SEC has designated specific deadlines for these reports and Good Times Restaurants must identify in this proxy statement those persons who did not
file these reports when due.
Based solely on a review of the reports filed with Good Times Restaurants and written representations received from reporting persons Good Times Restaurants believes that during the
fiscal year ended September 30, 2011 all Section 16(a) filing requirements for its officers, directors, and more than ten percent shareholders were complied with on a timely basis.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
INDEPENDENT PUBLIC ACCOUNTANTS : The Board of Directors appointed HEIN & ASSOCIATES LLP as Good Times Restaurants' independent auditors for the fiscal year
ended September 30, 2010 and fiscal year 2011, and to perform other accounting services. Representatives of HEIN & ASSOCIATES LLP are expected to be present at the annual
meeting of shareholders, and will have the opportunity to make a statement if they so desire and to respond to appropriate shareholder questions.
Audit Fees : The aggregate fees billed for professional services rendered by HEIN & ASSOCIATES LLP for its audit of the Company's annual financial statements for the fiscal year
ended September 30, 2011, and its reviews of the financial statements included in the Company's Forms 10-Qs for fiscal year 2011 were $71,482 compared to $75,910 in fees for the
fiscal year ended 2010.
Audit Related Fees: There were no aggregate fees billed by HEIN & ASSOCIATES LLP for assurance and related services that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under "Audit Fees" for the fiscal years ended September 30, 2011 and September 30, 2010.
Tax Fees: The aggregate fees billed by HEIN & ASSOCIATES LLP for the preparation and review of the Company's tax returns for the fiscal year ended September 30, 2011 were
$10,500 compared to $10,500 in fees for the fiscal year ended September 30, 2010.
All Other Fees : The aggregate fees billed to Good Times Restaurants for all other services rendered by HEIN & ASSOCIATES LLP for fiscal year 2011 were $14,030 compared to
$12,214 in fees for the fiscal year ended September 30, 2010. These fees are primarily related to a 401(k) plan audit .
Audit Committee: Policy on Pre-Approval Policies of Auditor Services: Under the provisions of the Audit Committee Charter, all audit services and all permitted non-audit services
(unless subject to a de minimis exception allowed by law) provided by our independent auditors, as well as fees and other compensation to be paid to them, must be approved in advance
by our Audit Committee. All audit and other services provided by HEIN & ASSOCIATES LLP during the fiscal year ended September 30, 2011, and the related fees as discussed above,
were approved in advance in accordance with SEC rules and the provisions of the Audit Committee Charter. There were no other services or products provided by HEIN &
ASSOCIATES LLP to us or related fees during the fiscal year ended September 30, 2011 except as discussed above.
Auditor Independence : The Audit Committee of the Board of Directors has considered the effect that the provision of the services described above under the caption "All Other Fees"
may have on the independence of HEIN & ASSOCIATES LLP. The Audit Committee has determined that provision of those services is compatible with maintaining the independence
of HEIN & ASSOCIATES LLP as the Company's principal accountants.
39
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
The following exhibits are furnished as part of this report:
Exhibit
3.1
Description
Articles of Incorporation of the Registrant (previously filed on November 30, 1988 as
Exhibit 3.1 to the registrant's Registration Statement on Form S-18 (File No. 33-25810-LA)
and incorporated herein by reference)
Amendment to Articles of Incorporation of the Registrant dated January 23, 1990
(previously filed on January 18, 1990 as Exhibit 3.1 to the registrant's Current Report on
Form 8-K (File No. 000-18590) and incorporated herein by reference)
Amendment to Articles of Incorporation (previously filed as Exhibit 3.5 to the registrant's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1996 and (File No.
000-18590) incorporated herein by reference)
Restated Bylaws of Registrant dated November 7, 1997 (previously filed as Exhibit 3.6 to
the registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1997 (File No. 000-18590) and incorporated herein by reference)
Restated Bylaws of Registrant, amended as of August 14, 2007 (previously filed as Exhibit
3/1 to the registrant's current report on Form 8-K dated August 14, 2007 (File No. 000-
18590) and incorporated herein by reference)
Certificate of Change of Good Times Restaurants Inc. of (previously filed as Exhibit 3.1 to
the registrant's Form 8-K Report dated January 12, 2011 (File No. 000-18590) and
incorporated herein by reference)
Certificate of Designations, Preferences, and Rights of Series B Convertible Preference
Stock of Good Times Restaurants Inc. (previously filed as Exhibit 1 to the Amendment No. 6
to Schedule 13D filed by The Erie County Investment Co., The Bailey Company, LLLP and
Paul T. Bailey (File No. 005-42729) on February 14, 2005 and incorporated herein by
reference)
1992 Incentive Stock Option Plan, as amended (previously filed as Exhibit 4.9 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 1998
(File No. 000-18590) and incorporated herein by reference)
1992 Non-Statutory Stock Option Plan, as amended (previously filed as Exhibit 4.10 to the
registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 1998
(File No. 000-18590) and incorporated herein by reference)
Employment Agreement dated October 3, 2001 between the registrant and Boyd E. Hoback
Wells Fargo Credit Agreement (previously filed as Exhibit 10.17 to the registrant's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 2003 (File No. 000-18590)
and incorporated herein by reference)
Form of Option Agreement (previously filed as Exhibit 10.18 to the registrant's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 2004 (File No. 000-18590)
and incorporated herein by reference)
Form of Option Grant Notice (previously filed as Exhibit 10.19 to the registrant's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 2004 (File No. 000-18590)
and incorporated herein by reference)
Cash Bonus Plan for Boyd Hoback (previously filed as Exhibit 10.20 to the registrant's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 2004 (File No. 000-
18590) and incorporated herein by reference)
Securities Purchase Agreements (previously filed on the registrant's Current Report on Form
8-K dated January 3, 2005 (File No. 000-18590) and incorporated herein by reference)
Amendment to Securities Purchase Agreement (previously filed as Exhibit 10.1 to the
registrant's Form 8-K Report dated January 27, 2005 (File No. 000-18590) and incorporated
herein by reference)
2001 Stock Option Plan, as amended (previously filed as Exhibit 99.1 to the registrant's
Registration Statement on Form S-8 filed on May 23, 2005 (Registration No. 333-125150)
and incorporated herein by reference)
Conversion of Series B Convertible Preferred Stock (previously filed as Exhibit 99.1 to the
registrant's Form 8-K Report dated June 8, 2006 (File No. 000-18590) and incorporated
herein by reference)
3.2
3.3
3.4
3.5
3.6
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
40
Exhibit
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Description
Loan Agreement and Promissory Note (previously filed as Exhibit 10.1 and 10.2 to the
registrant's Form 8-K Report dated August 7, 2006 (File No. 000-18590) and incorporated
herein by reference)
Acceleration of Vesting of Stock Options and Form of Resale Restriction Agreement
(previously filed as Exhibit 10.1 to the registrant's Form 8-K Report dated August 8, 2006
(File No. 000-18590) and incorporated herein by reference)
Expansion of Loan Agreement and Promissory Note (previously filed as Exhibit 10.1 and
10.2 to the registrant's Form 8-K Report dated March 15, 2007 (File No. 000-18590) and
incorporated herein by reference)
Loan Agreement and Promissory Note (previously filed as Exhibit 10.1 and 10.2 to the
registrant's Form 8-K Report dated May 7, 2007 (File No. 000-18590) and incorporated
herein by reference)
Amendment No. 1 to Loan Agreement and Promissory Note (previously filed as Exhibit 10.1
and 10.2 to the registrant's Form 8-K Report dated May 10, 2007 (File No. 000-18590) and
incorporated herein by reference)
2008 Omnibus Equity Incentive Compensation Plan (previously filed as Exhibit 10.1 to the
registrant's Form 8-K Report dated January 29, 2008 (File No. 000-18590) and incorporated
herein by reference)
Employment Agreement of Boyd E. Hoback (previously filed as Exhibit 10.1 to the
registrant's Form 8-K Report dated January 29, 2008 (File No. 000-18590) and incorporated
herein by reference)
Letter Agreement between Good Times Drive Thru Inc. and CEDA Enterprises, Inc.
(previously filed as Exhibit 10.1 to the registrant's Form 8-K Report dated March 12, 2008
(File No. 000-18590) and incorporated herein by reference)
Letter Agreement between Good Times Drive Thru Inc. and CEDA Enterprises, Inc. and
CEJ Investments, LLC (previously filed as Exhibit 10.2 to the registrant's Form 8-K Report
dated March 12, 2008 (File No. 000-18590) and incorporated herein by reference)
Amended and Restated Loan Agreement (previously filed as Exhibit 10.1 to the registrant's
Form 8-K Report dated July 2, 2008 (File No. 000-18590) and incorporated herein by
reference)
Promissory Note by Good Times Drive Thru Inc. and Good Times Restaurants Inc. payable
to PFGI II, LLC (previously filed as Exhibit 10.2 to the registrant's Form 8-K Report dated
July 2, 2008 (File No. 000-18590) and incorporated herein by reference)
Departure of Management Employees, Transfer of Development Rights and Suspension of
Expansion (previously filed in the registrant's Form 8-K Report dated June 26, 2008 (File
No. 000-18590) and incorporated herein by reference)
Suspension of Development Agreement previously filed as Exhibit 10.41 to the registrant's
Form 10-KSB Report dated December 26, 2008 (File No. 000-18590) and incorporated
herein by reference)
Results of Operations, Triggering Events and Other Events (previously filed as the
registrant's Form 8-K Report dated January 20, 2009 (File No. 000-18590) and incorporated
herein by reference)
Loan Agreement, Promissory Note, Warrant, Intercreditor Agreement and First Amendment
to Amended and Restated Promissory Note (previously filed as Exhibits 4.1, 10.1, 10.2, 10.3
and 10.4 to the registrant's Form 8-K Report dated April 20, 2009 (File No. 000-18590) and
incorporated herein by reference)
Agreement between Good Times Restaurants Inc. and Mastodon Ventures Inc. (previously
filed as Exhibit 10.1 to the registrant's Form 8-K Report dated August 14, 2009 (File No.
000-18590) and incorporated herein by reference)
Letter Agreement between Good Times Restaurants Inc. and PFGI II, LLC dated December
14, 2009 (previously filed as Exhibit 10.33 to the registration's Annual Report on Form 10-K
dated December 29, 2009 (File no. 000-18590) and incorporated herein by reference)
Promissory Note and Warrant dated January 19, 2010 (previously filed as Exhibits 4.1 and
10.1 to the registrant's Form 8-K Report dated January 21, 2010 (File No. 000-18590) and
incorporated herein by reference)
Loan Agreement, Convertible Secured Promissory Note and Warrants (previously filed as
Exhibits 4.1, 10.1 and 10.2 to the registrant's Form 8-K Report dated February 3, 2010 (File
No. 000-18590) and incorporated herein by reference)
Registration Statement (previously filed on the registrant's Registration Statement on Form
S-3 filed on March 4, 2010 (Registration No. 333-165189) and incorporated herein by
reference
41
Exhibit
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
14.1
21.1
23.1
31.1
31.2
32.1
Description
First Amendment to Loan Agreement, Convertible Secured promissory Note and Warrants
(previously filed as Exhibits 4.1, 10.1 and 10.2 to the registrant's Form 8-K Report dated
April 6, 2010 (File No. 000-18590) and incorporated herein by reference)
Amendment No. 1 to Registration Statement (previously filed on the registrant's Registration
Statement on Form S-3 filed on April 27, 2010 (Registration No. 333-165189) and
incorporated herein by reference
Securities Purchase Agreement dated October 29, 2010 (previously filed as Exhibit 10.1 to
the registrant's Form 8-K Report dated November 3, 2010 (File No. 000-18590) and
incorporated herein by reference)
Registration Rights Agreement dated December 13, 2010 (previously filed as Exhibit 10.1 to
the registrant's Form 8-K Report dated December 17, 2010 (File No. 000-18590) and
incorporated herein by reference)
Loan and Credit and Loan Agreement dated as of December 13, 2010 (previously filed as
Exhibit 10.1 to the registrant's Form 8-K Report dated December 17, 2010 (File No. 000-
18590) and incorporated herein by reference)
Consent and Agreement dated as of December 13, 2010 (previously filed as Exhibit 10.1 to
the registrant's Form 8-K Report dated December 17, 2010 (File No. 000-18590) and
incorporated herein by reference)
Consent and Waiver dated as of December 13, 2010 (previously filed as Exhibit 10.1 to the
registrant's Form 8-K Report dated December 17, 2010 (File No. 000-18590) and
incorporated herein by reference)
First Amendment to Amended and Restated Credit Agreement and Waiver of Defaults and
Second Amended and Restated Term Note of December 27, 2011 (previously filed as
Exhibit 10.1 and 10.2 to the registrant's Form 8-K Report dated December 27, 2011 (File No.
000-18590)
Code of Ethics (previously filed as Exhibit 14.1 to the registrant's Annual Report on Form
10-KSB for the fiscal year ended September 30, 2003 (File No. 000-18590) and incorporated
herein by reference)
Subsidiaries of registrant (previously filed as Exhibit 21.1 to the registrant's Annual Report
on Form 10-KSB for the fiscal year ended September 30, 1998 (File No. 000-18590) and
incorporated herein by reference)
*Consent of HEIN & ASSOCIATES LLP
*Certification of Chief Executive `Officer pursuant to 18 U.S.C. Section 1350
*Certification of Controller pursuant to 18 U.S.C. Section 1350
*Certification of Chief Executive Officer and Controller pursuant to 18 U.S.C. Section 1350
*Filed herewith
42
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GOOD TIMES RESTAURANTS INC.
Date: December 29, 2011
/s/ Boyd E. Hoback
Boyd E. Hoback
President and Chief Executive Officer
In accordance with the Exchange Act, 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/ David L. Dobbin
David L. Dobbin, Chairman
/s/ Susan M. Knutson
Susan M. Knutson, Controller and
Date: December 29, 2011
Principal Financial Officer
/s/ Geoffrey R. Bailey
Geoffrey R. Bailey, Director
Date: December 29, 2011
/s/ Keith A. Radford
Keith A. Radford, Director
Date: December 29, 2011
Date: December 29, 2011
/s/ Gary J. Heller
Gary J. Heller, Director
Date: December 29, 2011
/s/ Boyd E. Hoback
Boyd E. Hoback, Director
and President and CEO
Date: December 29, 2011
/s/ Eric W. Reinhard
Eric W. Reinhard, Director
Date: December 29, 2011
43
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Good Times Restaurants Inc. (the "Company") for the fiscal year ended September 30, 2011 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Boyd E. Hoback, as Chief Executive Officer of the Company, and Susan M. Knutson, as Controller of the Company, each
hereby certifies, pursuant to and solely for the purpose of 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.1
/s/ Boyd E. Hoback
Boyd E. Hoback
Chief Executive Officer
December 29, 2011
/s/ Susan M. Knutson
Susan M. Knutson
Controller (principal financial officer)
December 29, 2011
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
Exhibit 31.1
I, Boyd E. Hoback, certify that:
1. I have reviewed this annual report on Form 10-K of Good Times Restaurants Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: December 29, 2011
/s/ Boyd E. Hoback
Boyd E. Hoback
President and Chief Executive Officer
Exhibit 31.2
I, Susan M. Knutson, certify that:
1. I have reviewed this annual report on Form 10-K of Good Times Restaurants Inc.;
CERTIFICATION OF THE CONTROLLER
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: December 29, 2011
/s/ Susan M. Knutson
Susan M. Knutson
Controller
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference of our report dated December 29, 2011, accompanying the consolidated financial statements of Good Times Restaurants, Inc., also
incorporated by reference in the Form S-8 Registration Statements with registration numbers 333-60813, 333-98407, and 333-125150 and Form S-3 Registration Statement 333-122890
of Good Times Restaurants, Inc., and to the use of our name and the statements with respect to us, as appearing under the heading "Experts" in the Registration Statements.
Hein & Associates LLP
Denver, Colorado
December 29, 2011