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, 2012
[ ] 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)
84-1133368
(I.R.S. Employer Identification Number)
601 Corporate Circle, Golden, Colorado
(Address of principal executive offices)
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 $.001 par
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
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)
Yes [ ] No [x]
Yes [ ] No [x]
Yes [x] No [ ]
Yes [ ] No [x]
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.
[x]
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).
Yes [ ] No [x]
As of December 17, 2012, the aggregate market value of the 898,853 shares of common stock held by non affiliates of the issuer, based
on the closing sales price of the common stock on December 17, 2012 of $2.20 per share as reported on the Nasdaq Capital Market, was
$1,977,477.
As of December 17, 2012, the issuer had 2,726,214 shares of common stock outstanding.
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
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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
Item 15
Exhibits, Financial Statement Schedules
Signatures
PART IV
23.1
31.1
31.2
32.1
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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F1 – F17
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32 – 35
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40 – 42
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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 then increased for twenty three
consecutive months through June 2012, including an increase of 6.2% in fiscal 2011 and an increase of 3.1% in fiscal 2012.
In the fourth quarter of fiscal 2012 same store sales declined 1%; however we were negatively impacted by road
construction and road closures at two locations. Factoring out the sales declines at the two affected locations our same
store sales would have increased approximately 1.2% in the fourth quarter of fiscal 2012 which would have been the sixth
consecutive quarter of same store sales increases. These sales increases have been accomplished with lower advertising
expenditures as a percentage of sales as we have refocused our marketing expenditures to more on-site and trade area
activities, including new menu boards, point of purchase materials and facility improvements.
During fiscal 2012 we began the reimaging and remodeling of older restaurants that includes new signage, new exterior
finishes, upgraded lighting, patio enhancements and new graphics design. We anticipate that for our drive through only
restaurants, the cost of the reimaging will be approximately $40,000 per restaurant. Those older restaurants with dining
rooms will be slightly more and will vary depending on the age of the restaurant. We plan to systematically apply the
reimaging elements to our older, double drive thru restaurants and select dining room restaurants throughout fiscal 2013
and 2014, depending on the availability of funds.
In the first quarter of fiscal 2013 we implemented a new limited item breakfast menu that we anticipate will generate
incremental sales and additional profitability during the fiscal year. Consistent with our brand position of offering fresh, all
natural, handcrafted products, we elected to come to market with authentic, Hatch Valley New Mexico green chile burritos
at a price point of $2 each, which we believe is both an excellent value for our customer and is highly differentiated from
any other offerings in the quick service restaurant category. Because we do not offer a broad breakfast menu, we are
highly labor efficient for that day part resulting in a relatively low breakeven point and incremental profitability. We
anticipate market wide advertising for the new day part in fiscal 2013.
In the fourth quarter of fiscal 2012 and after several months of development, we began the test of a new chicken platform
centered on All Natural, Hand Breaded Chicken Tenders. We anticipate the system wide rollout in early fiscal 2013,
which will make Good Times the only quick service restaurant chain in Colorado serving All Natural beef and chicken with
no hormones, no steroids, no antibiotics and humanely raised animals with no animal byproducts in the feed. We anticipate
increasing our marketing messaging and expenditures around this strategic platform in fiscal 2013.
Our Income from Operations improved by $1,247,000 in fiscal 2011 compared to fiscal 2010 and by $191,000 in fiscal
2012 compared to fiscal 2011, even in the midst of unprecedented commodity cost increases. Our cost of sales, as a
percentage of net sales, declined 1.7% compared to fiscal 2011 as a result of menu price increases, new product
introductions and re-engineering of each category of our menu. As a result of the new breakfast day part introduction, we
anticipate that we will see continued leveraging of our fixed and semi-variable costs for improved profitability.
On September 28, 2012, we closed on a private placement of 355,451 shares of Series C Convertible Preferred Stock to
Small Island Investments Limited (“SII”) for an aggregate purchase price of $1,500,000 (or $4.22 per share), pursuant to
the terms of the Securities Purchase Agreement between the Company and SII dated June 13, 2012 and supplemented on
September 28, 2012 and October 16, 2012 (collectively, the “Purchase Agreement”). SII remains obligated, under the
Purchase Agreement, to close on the purchase of an additional 118,483 shares of Series C Convertible Preferred Stock, for
the additional aggregate purchase price of $500,000 (or $4.22 per share), on or before March 31, 2013, at such time as the
Company’s Board of Directors reasonably determines, with 45 days’ prior notice to SII, that the Company requires such
funds to maintain the minimum stockholders’ equity required under NASDAQ Listing Rule 5550(b) for continued listing
on The NASDAQ Capital Market. Each share of Series C Convertible Preferred Stock is convertible at the option of the
holder into two shares of Common Stock, subject to certain anti-dilution provisions. The shares of Series C Convertible
Preferred Stock will accrue dividends at the rate of 8.0% per annum of the original issue price of $4.22 per share, with such
3
accrued dividends payable quarterly. In the event the Series C Convertible Preferred Stock has not been converted to
Common Stock on or before March 28, 2014, thereafter (i) the rate of the accrued dividends shall increase to 15.0% per
annum from March 28, 2014 until converted or redeemed by the Company, and (ii) the Company may upon the approval of
a majority of the disinterested members of the Board of Directors redeem all or from time to time a portion of the Series C
Convertible Preferred Stock by payment of its liquidation preference. The shares of Series C Convertible Preferred Stock
also have additional voting rights, restrictions and provisions as disclosed in our Proxy Statement filed on August 10, 2012.
We sold one company-owned restaurant in Loveland, Colorado to an unrelated third party. The sale closed on July 9, 2012
with net proceeds of $605,000 which resulted in an $80,000 gain on the sale. We used $300,000 of the net proceeds to
prepay principal on our PFGI II, LLC note to release the collateral held by PFGI II on the property that was sold.
At September 30, 2012 we classified $1,380,000 as assets held for sale in the accompanying consolidated balance sheet.
These costs are related to a site in Firestone, Colorado which has been fully developed. On November 30, 2012 we
completed a sale lease-back transaction on the property. The net sale leaseback proceeds of $1,380,000 were used to
reduce the PFGI II term loan by $765,000 and to increase our working capital.
On November 30, 2012 we purchased the real estate underlying an existing restaurant from our landlord for $760,000. In
connection with the real estate purchase we have entered into an additional sale leaseback agreement that is expected to
close in January 2013 and we expect to recognize net proceeds of $870,000. We entered into an amendment to the PFGI II
loan agreement whereby we will repay the remaining loan balance out of the sale leaseback proceeds from the closing on
this sale leaseback transaction.
On December 5, 2012 we entered into an agreement to purchase a restaurant from a franchisee for a total of $1,250,000,
including the real estate and operating business with an anticipated closing date of December 31, 2012. We will pay
$650,000 in cash and issue a short term note of $600,000. We have entered into a sale leaseback agreement for the real
estate that we expect will yield approximately $1,050,000 in net proceeds by March 31, 2013.
On April 6, 2012, the Company engaged Heathcote Capital LLC (“Heathcote”) to provide the Company with exclusive
financial advisory services in connection with a possible strategic transaction, which services may include identifying and
contacting potential acquisition targets and/or sources of financing for the Company, advising and assisting the Company in
evaluating various structures and forms of any transaction, assisting in the preparation of proposals and evaluation of offers,
and assisting the Company in negotiating the financial aspects of the transaction. No such transaction has yet occurred, but
the Company continues to consider possible strategic alternatives. Gary J. Heller, a member of the Company’s Board of
Directors, is the principal of Heathcote. Accordingly, the Agreement constitutes a related party transaction and was
reviewed and approved by the Audit Committee of the Company’s Board of Directors.
In fiscal 2012 we sold two Company-operated restaurants and two franchise restaurants closed. Subsequent to September
30, 2012, two cobranded test restaurants with Taco Johns terminated their franchise agreements and the test is now limited
to three franchised restaurants in Wyoming and North Dakota. 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 2013 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. We
anticipate that the sale of a limited number of lower volume restaurants will improve our average unit sales, operating
margins as a percentage of revenue and may provide cash resources for reinvestment into existing restaurants, new
restaurant development and to increase our working capital.
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
4
“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. With the introduction of All Natural, Hand Breaded Chicken Tenders in fiscal 2013 Good Times will be the
only quick service restaurant chain in the region serving All Natural beef and chicken with no hormones, no steroids, no
antibiotics and humanely raised animals with no animal byproducts in the feed.
We continued to make significant product introductions and modifications in fiscal 2012 with a combination of limited time
offer and permanent product introductions including a 5280 Lifestyle menu providing lower calorie offerings, Sweet Potato
Fries, Summer and Holiday Shakes, Hatch Valley New Mexico Green Chile Burritos, Fresh Grilled, Honey Cured Bacon
Burgers and Loaded Fries. During 2013, we plan to focus on our new chicken platform, the new breakfast daypart, and
continued improvements in our core menu, including packaging changes.
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 and All Natural Chicken that is free from hormones,
antibiotics and animal 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 continue to work 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
o
o
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.
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.
Distinctive quality. We strive to offer unique, highly distinctive tastes with fresh, high quality,
handcrafted ingredients that are all natural and free of hormones, antibiotics or steroids whenever
possible.
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 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
“innovative, handcrafted, fresh, all natural food.” 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.
5
•
•
•
•
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 our
new breakfast category outside of Burgers, Sides and Custard. Depending on the availability of capital 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.
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 3.1% in fiscal 2012
compared to fiscal 2011. We hope to increase guest counts throughout fiscal 2013 through a multi-faceted
approach to continually improve the Good Times brand experience for our customers by:
•
Introducing a new breakfast daypart that we anticipate will generate incremental sales of at least 6%,
consisting of Hatch Valley Green Chile Burritos, Daz Bog Coffee and Orange Juice.
Introducing a new line of all natural, hand breaded chicken tenderloin products making Good Times the only
quick service restaurant company in Colorado offering all natural beef and chicken raised without hormones
or antibiotics and vegetarian fed animals.
Continuing to communicate our core value proposition that is centered on the availability of fresh, high
quality, handcrafted products at several different price points across our menu.
Shifting our marketing communications from solely broadcast media to more store level communications 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 with reimaging and remodeling.
•
•
•
•
•
•
2.
Reduce our Cost of Sales : In fiscal 2012 our food and packaging costs decreased by 1.7% of restaurant sales from
fiscal 2011 and in the fourth quarter they were 2.7% lower than the same period in fiscal 2011. The decrease was
primarily due to menu reengineering within our current menu categories. Our weighted average commodity costs
remained flat in fiscal 2012 compared to the prior year. We implemented a cumulative total menu price increase of
5.3% during
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fiscal 2011 and 1.6% in fiscal 2012. We expect to make modest price increases in fiscal 2013 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.
Pursue Strategic Alternatives : We continue to pursue possible additional strategic alternatives to enhance
shareholder value and leverage our existing General & Administrative expenses and the costs related to our
operation as a publicly traded entity. The strategic alternatives may include acquiring development rights to an
additional concept for growth, the acquisition of another operating company, a recapitalization of the Company for
accelerated growth or some combination of these strategies. If we can effect one or more of these strategic
alternatives, we believe we have the infrastructure in place to support a larger operating company and the growth
of another concept.
4.
Expansion strategy and site selection: We believe that our highest return opportunity is to focus Good Times’ growth in
Colorado for operating and marketing efficiencies off of our existing base of restaurants.
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
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 or franchise a total of thirty-nine Good Times restaurants, of which thirty-six
are in Colorado, with thirty five in the greater Denver metropolitan area and one in Silverthorne. Three of these restaurants
are “dual brand”, operated pursuant to a Dual Brand Test Agreement with Taco John’s International, of which there is one
in North Dakota and two in Wyoming.
Company-owned & Co-developed
Franchised
Dual brand franchised
December:
Company-owned restaurants
Co-developed
Franchise operated restaurants
Total restaurants:
Total
24
12
3
39
2011
18
7
20
45
Denver, CO
Greater Metro
23
12
35
Colorado,
Other Wyoming
North
Dakota
1
1
2
2
1
1
2012
17
7
15
39
In December 2011 a franchisee’s franchise agreement expired for a restaurant operating in Boise, Idaho and the franchisee
closed the restaurant. Also in December 2011 we sold one company-owned restaurant in Littleton, Colorado for cash. In
April 2012 a franchisee closed a restaurant in Colorado Springs, Colorado as part of our exit from that market. In July 2012
we sold one company-owned restaurant in Loveland, Colorado. In August we purchased a restaurant in Loveland, Colorado
from the franchisee. In December 2012 a franchisee terminated its Good Times franchise agreement in the dual brand
concept and has stopped selling Good Times products at two Colorado locations . We anticipate that franchisees may close
one low volume franchised restaurants in fiscal 2013 and we may close one lower volume company operated restaurants,
which would result in improved overall operating margins and more efficient allocation of overhead resources.
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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. In
November 2012 we introduced Hatch Valley Green Chile Breakfast Burritos, orange juice and coffee. 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, may also 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.
The breakfast menu is centered around Hatch Valley Green Chile Burritos made with our own proprietary green chile
recipe using Hatch Valley New Mexico roasted green chiles, eggs, potatoes, and cheese offered with the choice of bacon,
sausage or chorizo. We also offer a premium coffee made by Daz Bog, a Colorado based coffee roaster, and pure 100%
orange juice.
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 personality.
Media is an important component of building Good Times’ brand awareness and distinctiveness. We spent most of our
broadcast advertising dollars on radio media during fiscal 2012. 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
2012, we reduced our overall advertising expenditures and focused more of our marketing funds on store level and trade
area level communication and activities, supplemented by social media. During fiscal 2013 we will continue with limited
broadcast media, a social media presence that affords us a higher level of engagement with current customers and an
increased level of product giveaways to support high sales opportunity products.
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 a limited number of Operating Partners in a few 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
8
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. Most of our managers participate in a more traditional
bonus plan based on their performance against their monthly financial, operating, customer and people development
scorecard metrics.
Operational Systems and Processes: We believe that we have high level operating systems and processes relative to
those 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 testing a new point of sale
computer system that will improve our ability to analyze transaction, sales mix and employee data that we believe can
decrease our food waste and improve the effectiveness of store level marketing initiatives.
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 45 to 75 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-
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, 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
9
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 twelve franchise agreements in the greater Denver metropolitan area. Twelve franchise restaurants
and seven joint-venture restaurants are operating in the Denver metropolitan area media market. Dual branded franchised
restaurants operate in Gillette and Sheridan, Wyoming, 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 excellent food quality standards relative to
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 Food Services of America (formerly 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 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 17, 2012, we had approximately 400 employees of which 337 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.
We believe 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
10
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: “5280 Lifestyle Menu”, “Big Daddy Bacon Cheeseburger”, “Chicken
Dunkers”, “Happiness Made To Order”, “Mighty Deluxe”, “Mile High Sliders”, “Pawbender”, "Spoonbender", “Wild
Fries”, and “Wild Dippin’ Sauce”. Our trademarks expire between 2013 and 2018.
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.
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:
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•
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
o
o
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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 2013;
the sufficiency of the supply of commodities and labor pool to carry on our business;
success of advertising and marketing activities;
the absence of any material adverse impact arising out of any current litigation in which we are
involved;
impact of the adoption of new accounting standards and our financial and accounting systems and
analysis programs;
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o
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expectations regarding competition and our competitive advantages;
impact of our trademarks, service marks, and other proprietary rights; and
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.
ITEM 1A.
RISK FACTORS
You should consider carefully the following risk factors before making an investment decision with respect to the
Company’s 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, 2012 we had an accumulated deficit of $18,457,000. We cannot assure you that we will not
have a loss for the current fiscal year ending September 30, 2013.
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.
12
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.
We will require additional financing. In order to fully develop the Denver market 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 affects 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
13
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:
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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;
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 50.8% of
our outstanding Common Stock and controls approximately 60.9% of the total voting shares through its ownership of our
outstanding Series C Convertible Preferred Stock. SII also has veto rights with respect to certain major corporate
transactions by virtue of the terms of its Series C Convertible Preferred Stock. In addition, SII has the right, for so long as
it owns more than 50% of our outstanding capital 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. 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 2012, we received notice of non-compliance
with the minimum stockholders’ equity requirement for continued listing on the NASDAQ Capital Market. The closing of
our private placement transaction with SII on September 28, 2012 has allowed the Company to regain compliance with the
minimum stockholders’ equity requirement. In addition, SII has agreed to purchase an additional 118,483 shares of Series
C Convertible Preferred Stock, for an additional aggregate purchase price of $500,000 (or $4.22 per share), on or before
March 31, 2013, at such time as the Company’s Board of Directors reasonably determines, with 45 days’ prior notice to
SII, that the Company requires such funds to maintain the minimum stockholders’ equity requirement for continued listing
on the NASDAQ Capital Market.
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
14
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
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.
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ITEM 2.
PROPERTIES
We currently lease approximately 3,700 square feet of space for our executive offices in Golden, Colorado for
approximately $58,000 per year under a lease agreement which expires in December 2012 and we anticipate extending the
lease beyond 2012. The space is leased from The Bailey Company, a significant stockholder in the Company, at their
corporate headquarters.
As of December 15, 2012, Good Times has an ownership interest in twenty-four 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. There are
seventeen 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.
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.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
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.
QUARTER ENDED
HIGH LOW
QUARTER ENDED HIGH LOW
2011
2012
December 31, 2010
March 31, 2011
June 30, 2011
September 30, 2011
$ 3.00
$ 4.73
$ 2.44
$ 1.88
$ 1.56
$ 1.80
$ 1.64
$ 1.38
December 31, 2011
March 31, 2012
June 30, 2012
September 30, 2012
$ 1.65
$ 1.45
$ 5.00
$ 2.20
$ 1.06
$ .91
$ .90
$ 1.28
As of December 17, 2012 there were approximately 201 holders of record of our Common Stock. However, management
estimates that there are not fewer than 1,300 beneficial owners of our Common Stock.
As of December 17, 2012 all of our outstanding Series C Convertible Preferred Stock is held by SII.
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.
Further, the Series C Convertible Preferred Stock financing agreements provide for the payment of dividends on our Series
C
16
Convertible Preferred Stock and restrictions on the payment of dividends on our Common Stock. 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.
Cash dividends of $120,000 per year are payable quarterly on our outstanding shares of Series C Convertible Preferred
Stock (which is 8.0% per annum of the original issue price of $4.22 per share), with such payments to be made on August
15, November 15, February 15, and May 15 of each year, beginning February 15, 2013. In the event the outstanding shares
of Series C Convertible Preferred Stock have not been converted to Common Stock before March 28, 2014, thereafter (i)
the amount of dividends payable will increase to $225,000 per year (which is 15.0% per annum of the original issue price
of $4.22 per share) from March 28, 2014 until converted or redeemed by the Company, and (ii) the Company may upon the
approval of a majority of the disinterested members of the Board of Directors redeem all or from time to time a portion of
the Series C Convertible Preferred Stock by payment of its liquidation preference.
Recent Sales of Unregistered Securities : As previously disclosed in the Company’s current report on Form 8-K filed on
October 1, 2012, on September 28, 2012, the Company completed the sale and issuance of 355,451 shares of Series C
Convertible Preferred Stock to SII for an aggregate purchase price of $1,500,000 (or $4.22 per share), pursuant to the terms
of the Purchase Agreement. The terms of the Purchase Agreement and of the Series C Convertible Preferred Stock were
disclosed in the Company’s current reports on Form 8-K filed on June 19, 2012, September 20, 2012, October 1, 2012, and
October 16, 2012 and in the Company’s Proxy Statement filed on August 10, 2012. The Company received gross proceeds
of $1,500,000 in the transaction, which were used to pay related transaction expenses, to pay the Wells Fargo Note and
related interest rate swap in full, and to provide working capital.
The shares of Series C Convertible Preferred Stock sold to SII (the “Series C Shares”) were not registered under the
Securities Act of 1933, as amended (the “Securities Act”), or state securities laws, and neither the Series C Shares nor the
shares of Common Stock issuable upon conversion of the Series C Shares (together with the Series C Shares, the
“Securities”) may 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 Securities as principal for its own account for investment purposes
only and not with a view to or for distributing or reselling the Securities or any part thereof; and (c) it is knowledgeable,
sophisticated and experienced in making, and qualified to make, decisions with respect to investments in securities
representing an investment decision similar to that involved in the purchase of the Securities. 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 there-under for the purposes of the transaction with SII.
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. Pursuant to stockholder approval in September 2012 the total number of shares
available for issuance under the 2008 plan was increased to 500,000. For additional information, see Note 10, 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, 2012.
Equity Compensation Plan Information:
(a)
(b)
Number of securities to
be issued upon exercise
of outstanding options,
warrants & rights
Weighted-average
exercise price of
outstanding options,
warrants & rights
(c)
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
175,289
175,289
$6.18
$6.18
324,711
324,711
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 Company analyzes its operations on a regional basis, when evaluating closed restaurant operations for consideration as
to the classification between continuing operations and discontinued operations. Prior to fiscal 2011 the Company
evaluated operations at the restaurant level. In its reevaluation the Company determined that as most of the Company’s
restaurants are within the Denver metropolitan region and share common advertising, distribution, supervision, and to a
certain extent even customers, the Company believes it appropriate to perform its analysis on a regional basis. During 2011
the Company closed two restaurants and in 2012 the Company closed an additional two restaurants. The operations related
to these restaurants are reflected as part of continuing operations as they were within one continuing operating region.
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, 2008 to 2012. 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
Total Net Revenues
Restaurant Operating 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
Loss from Operations
Other Income and (expenses)
Unrealized gain (loss) on interest rate
swap
Other income (expense)
Interest income (expense), net
Total other income (expense)
Net Loss from continuing operations
Loss from discontinued operations
Net Loss
Income (Expense) from non-controlling
interest
Income tax expense
Net Loss attributable to Good Times
Restaurants Inc.
Basic and Diluted Loss Per Share
Balance Sheet Data:
Working Capital (Deficit)
Total assets
Non-controlling interest in partnerships
Long-term debt
Stockholders' equity
September 30,
2012
$ 19,274,000 $
432,000
19,706,000
2011
20,183,000 $
420,000
20,603,000
2010
20,390,000 $
473,000
20,863,000
2009
22,079,000 $
536,000
22,615,000
2008
25,244,000
638,000
25,882,000
6,592,000
6,691,000
3,939,000
-
795,000
18,017,000
2,154,000
60,000
(51,000)
($474,000)
20,000
(15,000)
(199,000)
(194,000)
($668,000)
-
($668,000)
7,241,000
7,043,000
4,172,000
-
888,000
19,344,000
2,038,000
70,000
(184,000)
($665,000)
7,181,000
7,359,000
4,331,000
-
943,000
19,814,000
2,638,000
124,000
199,000
($1,912,000)
7,423,000
7,663,000
4,529,000
15,000
1,172,000
20,802,000
2,814,000
161,000
(28,000)
($1,134,000)
27,000
22,000
(279,000)
(230,000)
($895,000)
-
($895,000)
3,000
-
(598,000)
(1,185,000)
($2,507,000)
(590,000)
($3,097,000)
(87,000)
-
(261,000)
(566,000)
($1,482,000)
(218,000)
($1,700,000)
8,002,000
8,780,000
4,881,000
38,000
1,283,000
22,984,000
3,567,000
312,000
(35,000)
($946,000)
–
–
(13,000)
(13,000)
($959,000)
-
($959,000)
(109,000)
–
(118,000)
–
165,000
–
54,000
–
(113,000)
4,000
($777,000)
($.29)
($1,013,000)
($.42)
($2,932,000)
($2.26)
($1,646,000)
($1.26)
($1,076,000)
($.84)
$
848,000
7,061,000
203,000
139,000
$ 3,260,000 $
($488,000)
6,999,000
215,000
2,067,000
2,520,000 $
($1,869,000)
8,318,000
274,000
3,005,000
1,694,000 $
($1,200,000)
10,254,000
428,000
2,478,000
4,378,000 $
($2,082,000)
11,920,000
584,000
846,000
5,993,000
18
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net Revenues: Net revenues for fiscal 2012 decreased $897,000 (-4.4%) to $19,706,000 from $20,603,000 for fiscal 2011.
Same store restaurant sales increased $534,000 (+3.1%) during fiscal 2012. 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 increased $116,000 due to one restaurant purchased from a franchisee in August
2012. Restaurant sales decreased $95,000 due to one non-traditional company-owned restaurant not included in same store
sales and decreased $269,000 due to one dual branded company-owned restaurant sold in July 2012. Restaurant sales also
decreased $1,196,000 due to two company-owned restaurants sold in fiscal 2011 and one company-owned restaurant sold
in fiscal 2012. Net revenues increased $12,000 in fiscal 2012 due to an increase in franchise royalties and fees.
The positive same store sales results for fiscal 2012 reflect the continuation of the positive momentum we experienced in
fiscal 2011 when same store sales increased 6.2%. Same store sales were negatively impacted in the fourth quarter of fiscal
2012 by road construction and road closures at two of our restaurants. The estimated loss of sales related to these two
restaurants in the fourth quarter was $100,000. Factoring out the sales declines at the two affected locations, our same store
sales would have increased approximately 1.2% in the fourth quarter of fiscal 2012 which would have been the sixth
consecutive quarter of same store sales increases.
Our outlook for fiscal 2013 is cautiously optimistic based on the last two years 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 increased in fiscal 2012 compared to fiscal 2011 and we are continuing to manage our
marketing communications to balance growth in customer traffic and the average customer 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 and out of market restaurants) for fiscal 2011 and 2012
were as follows:
Company-operated
Fiscal 2012
$807,000
Fiscal 2011
$779,000
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 pages 6 - 7 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 4 - 6 of this report.
Restaurant Operating Costs: Restaurant operating costs as a percent of restaurant sales were 93.5% for fiscal 2012
compared to 95.8% in fiscal 2011.
The changes in restaurant-level costs are explained as follows:
Restaurant-level costs for the period ended September 30, 2011
Decrease 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, 2012
95.8%
(1.7%)
(.2%)
(.2%)
(.2%)
93.5%
Food and Packaging Costs: Food and packaging costs for fiscal 2012 decreased $649,000 from $7,241,000 (35.9% of
restaurant sales) in fiscal 2011 to $6,592,000 (34.2% of restaurant sales).
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.
In fiscal 2012 our weighted food and packaging costs decreased slightly. The total menu price increases taken during fiscal
2012 were 1.6%, all of which were taken in the last five months of the fiscal year. We anticipate cost pressure on several
core commodities, including beef, bacon and dairy for fiscal 2013. However, we anticipate our food and packaging costs as
a percentage of sales will remain consistent with fiscal 2012 in fiscal 2013 from a combination of price increases, product
sales mix changes and recipe modifications.
19
Payroll and Other Employee Benefit Costs: For fiscal 2012, payroll and other employee benefit costs decreased
$352,000 from $7,043,000 (34.9% of restaurant sales) in fiscal 2011 to $6,691,000 (34.7% of restaurant sales).
The decrease in payroll and other employee benefit expenses as a percent of restaurant sales for fiscal 2012 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 $519,000 in fiscal 2012 due to two company-owned restaurants sold in February and May 2011, one
company-owned restaurant sold in December 2011 and one company owned restaurant sold in July 2012. We anticipate
payroll and other employee benefit costs will decrease as a percentage of sales in fiscal 2013 due to the operating leverage
on increasing sales.
Occupancy and Other Costs: For fiscal 2012, occupancy and other costs decreased $233,000 from $4,172,000 (20.7% of
restaurant sales) in fiscal 2011 to $3,939,000 (20.4% of restaurant sales). The $233,000 decrease in occupancy and other
costs is primarily attributable to:
•
•
Decrease in building rent of $159,000 primarily due to the four restaurants sold in fiscal 2012 and fiscal 2011.
Decrease of $221,000 in all other restaurant operating costs due to the four restaurants sold in fiscal 2012 and
fiscal 2011.
The decreases above were offset by the following cost increases:
•
•
Increases in various other restaurant operating costs of $123,000 at existing restaurants comprised primarily of
repairs and maintenance utility costs and bank fees.
An adjustment of $38,000 to our liability for the accretion of deferred rent in fiscal 2012 due to two sold
restaurants. This compares to an adjustment of $62,000 in fiscal 2011 due to sold restaurants.
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 2012, depreciation and amortization costs decreased $93,000 from
$888,000 in fiscal 2011 to $795,000. Depreciation costs primarily decreased due to the four restaurants sold in fiscal 2012
and 2011 as well as due to declining depreciation expense in our aging company-owned and joint-venture restaurants.
General and Administrative Costs: For fiscal 2012, general and administrative costs increased $77,000 from $1,281,000
(6.2% of total revenues) in fiscal 2011 to $1,358,000 (6.9% of total revenues).
The $77,000 increase in general and administrative expenses in fiscal 2012 is primarily attributable to:
•
•
•
•
Increase in payroll and employee benefit costs of $64,000 due to the reinstatement of certain management level
salaries that were reduced in fiscal 2009 and 2010.
Increase in professional services of $10,000.
Decrease of $19,000 in miscellaneous income.
Net increases in various other expenses of $16,000.
Advertising Costs: For fiscal 2012, advertising costs increased $39,000 from $757,000 (3.8% of restaurant sales) in fiscal
2011 to $796,000 (4.1% of restaurant sales).
Contributions are made to the advertising materials fund and regional advertising cooperative based on a percentage of
sales and there was a slight increase in the percentage contribution for fiscal 2012 compared to fiscal 2011.
We anticipate that fiscal 2013 advertising expense will remain consistent with fiscal 2012 and will consist primarily of
radio advertising, social media and on-site and point-of-purchase merchandising totaling approximately 4.3% of restaurant
sales.
Franchise Costs: For fiscal 2012 franchise costs decreased $10,000 from $70,000 (.3% of total revenues) in fiscal 2011 to
$60,000 (.3% of total revenues).
The decrease in franchise costs for fiscal 2012 is primarily attributable to a lower allocation of costs incurred due to fewer
franchise restaurants in the system.
Gain on Restaurant Asset Sales For fiscal 2012 the gain on restaurant asset sales decreased to $51,000 compared to
$184,000 in fiscal 2011. The gain on restaurant assets sales in fiscal 2012 is comprised of a $24,000 deferred gain on a
previous sale lease-back transaction, an $89,000 gain on the sale of two company-owned restaurants, offset by a $62,000
20
loss to adjust the book value of a property in Firestone, Colorado to its fair market value.
The $184,000 gain on restaurant asset sales in fiscal 2011 was 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.
Loss from Operations: The loss from operations was $474,000 in fiscal 2012 compared to a loss from operations of
$665,000 in fiscal 2011. 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.
Net Loss: The net loss was $668,000 for fiscal 2012 compared to $895,000 in fiscal 2011. The change from fiscal 2011 to
fiscal 2012 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 $90,000 compared to the same prior year period; and 2) an increase in other expenses of $37,000
compared to the same prior year period.
Net interest expense decreased in fiscal 2012 compared to the same prior year period primarily due to a reduction in the
principal balances outstanding on the notes payable to Wells Fargo Bank and PFGI II. Net interest expense for fiscal 2012
includes non-cash amortization of debt issuance costs of $26,000 related to warrants issued in conjunction with the
extension of the PFGI II loan in January, 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. (See
“Financing” below).
Income Attributable to Non-controlling Interests: For fiscal 2012 the income attributable to non-controlling interests
was $109,000 compared to $118,000 in fiscal 2011. The loss from non-controlling interest represents the limited partner’s
share of income in the co-developed restaurants.
Liquidity and Capital Resources
Cash and Working Capital: As of September 30, 2012, we had a working capital excess of $848,000. Because restaurant
sales are collected in cash and accounts payable for food and paper products are paid two to four weeks later, restaurant
companies often operate with working capital deficits. We anticipate that working capital deficits may be incurred in the
future and possibly increase if and when new Good Times restaurants are opened. We believe that we will have sufficient
capital to meet our working capital, long term debt obligations and recurring capital expenditure needs in fiscal 2013 and
beyond. We will require additional capital sources for the development of new restaurants. 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 : The balance of our loan from Wells Fargo Bank, N.A. (“Wells Fargo”) at September 30, 2012
was $232,000. We subsequently used a portion of the proceeds received by the Company from the sale of Series C
Convertible Preferred Stock to SII to pay in full the outstanding balance, along with the associated interest rate swap with
Wells Fargo.
PFGI II LLC Promissory Note : In July 2008, we borrowed $2,500,000 from PFGI II, LLC (“PFGI II”), an unrelated third
party, and issued a promissory note in the principal amount of $2,500,000 to PFGI II (the “PFGI II Note”). The PFGI II
Note has subsequently been amended on several occasions. During 2011 and 2012, the interest rate on the note was 8.65%.
In April 2012 PFGI II agreed to extend the loan to December 31, 2013 on the existing note terms if a sale leaseback has
not been completed on the Firestone property. The note balance at September 30, 2012 was $1,318,000. On November 30,
2012 we entered into a sale lease-back transaction on the Firestone property with net proceeds of $1,380,000 and we used
$765,000 to pay down the PFGI II Note. The remaining balance of $545,000 is due on or before January 31, 2013 which
we anticipate repaying from the proceeds of a sale leaseback transaction.
SII Investment Transactions : On December 13, 2010, we closed on a private placement of 1,400,000 shares of our
Common Stock to SII for an aggregate purchase price of $2,100,000 (or $1.50 per share), pursuant to the terms of a
Securities Purchase Agreement between the Company and SII dated October 29, 2010, as amended December 13, 2010.
As a result of the completion of the investment transaction with SII, SII became the beneficial owner of approximately
51.4
21
percent of the Company’s outstanding Common Stock. The proceeds from the 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.
On September 28, 2012, we closed on a second investment transaction with SII, in which the Company sold and issued to
SII 355,451 shares of Series C Convertible Preferred Stock for an aggregate purchase price of $1,500,000 (or $4.22 per
share) pursuant to the Purchase Agreement, with each share of Series C Convertible Preferred Stock convertible at the
option of the holder into two shares of our Common Stock, subject to certain anti-dilution adjustments. As a result of this
transaction, SII’s beneficial ownership interest in the Company increased to 60.9 percent. The proceeds from this
transaction were used to pay approximately $40,000 of expenses related to the transaction and to repay $232,000 to Wells
Fargo, with the balance of the proceeds going to increase the Company’s working capital.
Cash Flows: Net cash used in operating activities was $22,000 for fiscal 2012 compared to net cash used in operating
activities of $539,000 in fiscal 2011. The increase in net cash used in operating activities from continuing operations for
fiscal 2012 was the result of a net loss of $668,000 and non-cash reconciling items totaling $846,000 (comprised
principally of 1) depreciation and amortization of $795,000; 2) amortization of debt issuance costs of $26,000; 3) $69,000
of stock option compensation expense; 4) a $51,000 gain on asset sales; 5) a $116,000 increase in other receivables and
other assets: and 7) net increases in operating assets and liabilities totaling $77,000).
Net cash provided by investing activities in fiscal 2012 was $594,000 compared to $954,000 in fiscal 2011. The fiscal
2012 activity reflects payments for the purchase of property and equipment of $314,000, proceeds from the sales of fixed
assets of $913,000 and $5,000 loans to franchisees and others, net of payments received on loans.
Net cash used in financing activities in fiscal 2012 was $803,000 compared to net cash provided by financing activities of
$3,000 in fiscal 2011. The fiscal 2012 activity includes principal payments on notes payable and long term debt of
$650,000, costs related to the preferred stock sale of $32,000 and distributions to non-controlling interests in partnerships
of $121,000.
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.
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, 2012 were $20,000.
Discontinued Operations: The Company analyzes its operations on a regional basis, when evaluating closed restaurant
operations for consideration as to the classification between continuing operations and discontinued operations. Prior to
2010 the Company evaluated operations at the restaurant level. In its reevaluation the Company determined that as most of
the Company’s restaurants are within the Denver metropolitan region and share common advertising, distribution,
supervision, and to a certain extent even customers, the Company believes it appropriate to perform its analysis on a
regional basis. During fiscal 2011 the Company closed two restaurants, and in fiscal 2012, the Company closed an
additional two restaurants. The operations related to these restaurants are reflected as part of continuing operations as they
were within one continuing operating region.
22
Non-controlling Interests: Non-controlling interests, previously called minority interests, are presented as a separate item
in the equity section of the consolidated balance sheet. Consolidated net income or loss attributable to non-controlling
interests are presented on the face of the consolidated statement of operations. Additionally, 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 is recorded as a gain or loss based on the fair value on the deconsolidation date.
Impairment of Long-Lived Assets: We review our long-lived assets for impairment, 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, 2012. Assumptions used in preparing
expected cash flows were as follows:
•
•
•
•
•
Sales projections are as follows: Fiscal 2013 sales are projected to increase 6% with respect to fiscal 2012 and for
fiscal years 2014 to 2027 we have used annual increases of 2% to 3%. The 6% increase in fiscal 2013 is due to the
addition of breakfast sales. We believe the 2% to 3% increase in the fiscal years beyond 2013 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 .5% as a percentage of sales in relation to our
fiscal 2012 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, 2012 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.
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.
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 under 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.
23
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 2009 through 2012. 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, 2012.
Variable Interest 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, we are not the
primary beneficiary of the entities, and therefore they are not required to be consolidated.
Fair Value of Financial Instruments: Fair value is established under a framework for measuring fair value under GAAP
and enhances disclosure about fair value measurements.
New Accounting Pronouncements : There are no current pronouncements that affect the Company.
Subsequent Events:
At September 30, 2012 we classified $1,380,000 as assets held for sale in the accompanying consolidated balance sheet.
These costs are related to a site in Firestone, Colorado which has been fully developed. On November 30, 2012 we
completed a sale lease-back transaction on the property. The net sale leaseback proceeds of $1,380,000 were used to
reduce the PFGI II term loan by $765,000 and to increase our working capital.
On November 30, 2012 we purchased the real estate underlying an existing restaurant from our landlord for $760,000. In
connection with the real estate purchase we have entered into an additional sale leaseback agreement that is expected to
close in January 2013 and we expect to recognize net proceeds of $870,000. We entered into an amendment to the PFGI II
loan agreement whereby we will repay the remaining loan balance out of the sale leaseback proceeds from the closing on
this sale leaseback transaction.
On December 5, 2012 we entered into an agreement to purchase a restaurant from a franchisee for a total of $1,250,000,
including the real estate and operating business with an anticipated closing date of December 31, 2012. We will pay
$650,000 in cash and issue a short term note of $600,000. We have entered into a sale leaseback agreement for the real
estate that we expect will yield approximately $1,050,000 in net proceeds by March 31, 2013.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
24
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – September 30, 2012 and 2011
Consolidated Statements of Operations – For the Years Ended September 30, 2012 and 2011
Consolidated Statements of Stockholders’ Equity – For the Period from October 1, 2010
through September 30, 2012
Consolidated Statements of Cash Flows – For the Years Ended September 30, 2012 and 2011
PAGE
F-2
F-3
F-4
F-5
F-6
Notes to Consolidated Financial Statements
F-7 – F-17
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Good Times Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of Good Times Restaurants, Inc. and subsidiaries as of
September 30, 2012 and 2011, 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 subsidiaries as of September 30, 2012 and 2011, 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 28, 2012
F-2
Good Times Restaurants Inc. and Subsidiary
Consolidated Balance Sheets
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Preferred stock sale receivable
Assets held for sale
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
OTHER ASSETS:
Notes receivable, net of current portion
Deposits and other assets
September 30,
2012
2011
$
$
616,000
1,500,000
1,380,000
145,000
53,000
159,000
5,000
3,858,000
4,887,000
3,241,000
7,369,000
15,497,000
(12,415,000)
3,082,000
$
847,000
-
-
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
15,000
106,000
121,000
7,061,000
$
10,000
71,000
81,000
6,999,000
$
TOTAL ASSETS
CURRENT LIABILITIES:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt and capital lease obligations, net of
$
1,586,000
$
195,000
discount of $7,000 and $26,000, respectively
Accounts payable
Deferred income
Other accrued liabilities
Total current liabilities
LONG-TERM LIABILITIES:
Debt and capital lease obligations, net of current portion and net of discount
of $0 and $7,000, respectively
Deferred and other liabilities
Total long-term liabilities
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS’ EQUITY:
Good Times Restaurants Inc stockholders’ equity:
Preferred stock, $.001 par value;
5,000,000 shares authorized, 355,451 and 0 issued
and outstanding as of September 30, 2012 and 2011, respectively (liquidation
preference $1,500,000)
Common stock, $.001 par value; 50,000,000 shares
authorized, 2,726,214 shares issued and outstanding
as of September 30, 2012 and 2011
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
493,000
75,000
856,000
3,010,000
139,000
652,000
791,000
496,000
101,000
892,000
1,684,000
2,067,000
728,000
2,795,000
1,000
-
3,000
21,510,000
(18,457,000)
3,057,000
203,000
3,260,000
7,061,000
$
3,000
19,982,000
(17,680,000)
2,305,000
215,000
2,520,000
6,999,000
$
F-3
Good Times Restaurants Inc. and Subsidiary
Consolidated Statements of Operations
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
Gain on restaurant asset sale
LOSS FROM OPERATIONS
OTHER INCOME (EXPENSES):
Interest income
Interest expense
Other income (expense)
Unrealized income on interest rate swap
Total other expenses, net
NET LOSS
Income attributable to non-controlling interests
NET LOSS ATTRIBUTABLE TO GOOD TIMES RESTAURANTS, INC
BASIC AND DILUTED LOSS PER SHARE:
Net loss attributable to Good Times Restaurants, Inc
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted
F-4
FOR THE YEARS ENDED
SEPTEMBER 30,
2012
2011
$
19,274,000
18,000
414,000
19,706,000
$
20,183,000
1,000
419,000
20,603,000
6,592,000
6,691,000
2,999,000
940,000
795,000
18,017,000
1,358,000
796,000
60,000
(51,000)
(474,000)
4,000
(203,000)
(15,000)
20,000
(194,000)
($668,000)
(109,000)
($777,000)
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)
22,000
27,000
(230,000)
($895,000)
(118,000)
($1,013,000)
($.29)
($.42)
2,726,214
2,440,860
Good Times Restaurants Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity
For the period from October 1, 2010 through September 30, 2012
Preferred Stock
Common Stock
Issued
Shares
Par
Value
Issued
Shares (1)
Par
Value (1)
Capital
Contributed in
Excess of Par
Value (1)
Non-
controlling
interest in
Partnerships
Accumulated
Deficit
Total
BALANCES , October 1, 2010
-
$
0
1,299,520
$ 1,000 $ 18,156,000 $ 274,000 $ (16,737,000) $ 1,694,000
Stock option compensation cost
Stock issued
Non-controlling interest in Partnerships
Net Loss and comprehensive loss
BALANCES , September 30, 2011
Stock issued
Stock option compensation cost
Non-controlling interest in Partnerships
Net Loss and comprehensive loss
-
$
355,451
0
-
1,426,695
2,000
61,000
1,765,000
(59,000)
70,000
(1,013,000)
61,000
1,767,000
11,000
(1,013,000)
2,726,214
$ 3,000 $ 19,982,000 $ 215,000 $ (17,680,000) $ 2,520,000
1,460,000
69,000
(12,000)
(777,000)
1,460,000
69,000
(12,000)
(777,000)
BALANCES , September 30, 2012
355,451
$ 1,000
2,726,214
$ 3,000 $ 21,510,000 $ 203,000 $ (18,457,000) $ 3,260,000
(1)
Adjusted to effect a 1 for 3 reverse stock split on December 31, 2010
F-5
Good Times Restaurants Inc. and Subsidiary
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES :
Net Loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of debt issuance costs
Accretion of deferred rent
Write off of note receivable
Gain on disposal of property, restaurants and equipment
Stock option compensation cost
Unrealized income on interest rate swap agreement
Changes in operating assets and liabilities:
(Increase) decrease in:
Other 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
CASH FLOWS FROM INVESTING ACTIVITIES :
Payments for the purchase of property and equipment
Proceeds from the sale of assets
Loans made to franchisees and to others
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
Proceeds (costs) from stock sale
Distributions to minority interest partner
Net cash provided by (used in) 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
Purchase of equipment with debt and capital leases
Receivable from sale of preferred stock
F-6
FOR THE YEARS ENDED
September 30,
2012
2011
$
(668,000) $
(895,000)
795,000
26,000
(38,000)
-
(51,000)
69,000
(20,000)
(47,000)
32,000
(6,000)
(63,000)
(11,000)
(40,000)
(22,000)
(314,000)
913,000
(16,000)
11,000
594,000
888,000
48,000
(62,000)
4,000
(184,000)
61,000
(27,000)
51,000
10,000
(9,000)
(43,000)
(220,000)
(161,000)
(539,000)
(189,000)
1,143,000
-
-
954,000
(650,000)
(32,000)
(121,000)
(803,000)
(1,617,000)
1,727,000
(107,000)
3,000
(231,000)
847,000
616,000 $
$
418,000
429,000
847,000
171,000 $
$
87,000
$
$
$ 1,500,000
240,000
124,000
-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Summary of Significant Accounting Policies (policies):
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, 2012, operates twenty four company-owned and joint
venture drive-thru fast food hamburger restaurants. The Company’s restaurants are located in Colorado. In addition, Drive
Thru has seventeen franchises, fourteen operating in Colorado, two in Wyoming 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.
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. The Company owns an approximate
51% interest in the limited partnership, is the sole general partner and receives a management fee prior to any distributions
to the limited partner. 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
is adjusted each period to reflect the limited partner’s share of the net income or loss as well as any cash distributions to the
limited partner for the period. 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.
Basis of Presentation – The Company analyzes its operations on a regional basis, when evaluating closed restaurant
operations for consideration as to the classification between continuing operations and discontinued operations. As most of
the Company’s restaurants are within the Denver metropolitan region and share common advertising, distribution,
supervision, and to a certain extent even customers, the Company believes it appropriate to perform its analysis on a
regional basis. During 2011 the Company closed two restaurants and in 2012, the Company has closed an additional two
restaurants. The operations related to these restaurants are reflected as part of continuing operations as they were within
one continuing operating region. The Company had minimal gains in connection with the sales of each of these restaurants
and their combined operating losses were approximately $275,000 in 2011 and $158,000 in 2012.
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.
During the years ended September 30, 2012 and 2011 the Company incurred expenses of $15,000 and income of $22,000,
respectively, and has a remaining lease liability of $82,000 as of September 30, 2012, related to a restaurant that was closed
prior to 2011 and was previously classified as discontinued operations. Due to the insignificance of the amounts, the
Company has reclassified such amounts as other expense in operations and as other liabilities on the condensed
consolidated balance sheet.
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.
F-7
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.
At September 30, 2012 we classified $1,380,000 as assets held for sale in the accompanying consolidated balance sheet.
These costs are related to a site in Firestone, Colorado which has been fully developed. Subsequent to September 30, 2012
we completed a sale lease-back transaction on the property. The $1,380,000 represents the fair market value of the assets. A
charge of $61,000 is included in the accompanying consolidated statement of operations to adjust the assets to their fair
market value. The net proceeds of $1,380,000 were used to pay down the PFGI II, LLC note payable by $765,000 and to
purchase the real estate underlying an existing company-owned restaurant in Wheat Ridge, Colorado.
Impairment of Long-Lived Assets – We review our long-lived assets including land, property and equipment for
impairment 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
An analysis was performed for impairment at September 30, 2012 and given the results of our analysis there were no
restaurants which are impaired.
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. If the initial payment is less
than specified percentages, use of the installment method is followed.
The Company accounts for the sale of restaurants when 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 $283,000 as of September 30, 2012) is
reflected in the accompanying consolidated balance sheet as a deferred liability. Also included in the $652,000 deferred
and other liabilities balance is a $282,000 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 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.
F-8
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.
Income Taxes – We account for income taxes under 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 2009 through 2012. 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, 2012.
Net Income (Loss) Per Common Share – Basic Earnings per Share 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 175,289 and 166,022 shares of common stock, and warrants for 70,871 and 101,704 shares
of common stock, were not included in computing diluted EPS for 2012 and 2011, 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 5).
Financial instruments potentially subjecting the Company to concentrations of credit risk consist principally of receivables.
At September 30, 2012 notes receivable totaled $20,000 and are due from two entities. The Company has a $1,500,000
current receivable related to the preferred stock sale that occurred on September 28, 2012. The full $1,500,000 was received
on October 1, 2012. Additionally, the Company has other current receivables totaling $145,000, which includes $64,000 of
franchise receivables and $63,000 for a receivable from the advertising cooperative fund, which are all due in the normal
course of business.
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
F-9
fiscal 2009 through fiscal 2012 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 3 for additional
information.
Stock-Based 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). See Note 9 for additional information.
Variable Interest 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. The Company has two franchisees with notes
payable to the Company. This franchisees are VIE’s, however, the franchisees are the primary beneficiary of the entities,
not the Company. Therefore they are not required to be consolidated.
Fair Value of Financial Instruments –Fair value, is defined under a framework for measuring fair value under generally
accepted accounting principles and enhances disclosures about fair value measurements. See Note 8 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
maximize the use of observable inputs and minimize the use of unobservable inputs.
The following three levels of inputs may be used to measure fair value and requires that the assets or liabilities carried at
fair value are disclosed by the input level under which they were valued.
Level 1:
Level 2:
Quoted market prices in active markets for identical assets and liabilities.
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.
Unobservable inputs that are not corroborated by observable market data.
Level 3:
Non-controlling Interests
Non-controlling interests are presented as a separate item in the equity section of the consolidated balance sheet. The
amount of consolidated net income or loss attributable to the non-controlling interests are clearly presented on the face of
the consolidated income statement.
Recent Accounting Pronouncements – There are no current pronouncements that affect the Company.
2.
Liquidity :
As of September 30, 2012, we had $616,000 in cash and cash equivalents on hand. We currently plan to use the cash
balance and the $1,500,000 proceeds of the preferred stock sale funded on October 1, 2012, along with any cash generated
from operations, for our working capital needs in fiscal 2013. We believe that we will have sufficient capital to meet our
working capital, long term debt obligations and recurring capital expenditure needs in fiscal 2013. 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, 2012, we had a working capital excess of $847,000. Because restaurant sales are collected in cash and
accounts payable for food and paper products are paid two to four weeks later, restaurant companies often operate with
working capital deficits. We anticipate that working capital deficits will be incurred in the future and may increase as new
Good Times restaurants are opened.
F-10
3.
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 January 31, 2013. The loan is
collateralized by one Real Property Deed of Trust, three 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 five corporate restaurants. The promissory note constitutes a
line of credit which may be repaid but not re-advanced, at any time. This note was reduced by $765,000
on November 30, 2012.
Note payable with Wells Fargo Bank, NA with scheduled payments of principal and interest (prime rate
less .5%) due monthly, and the final payment due in January 2014. The loan is collateralized by Security
Agreements related to the furniture, fixtures and equipment of the eight corporate restaurants. This note
was repaid in full on October 2, 2012.
Capital signage leases with Yesco, LLC with payments of principal and interest (8%) due monthly.
Notes payable with Ally Financial with payments of principal and interest (1.9% to 3.9%) due monthly.
The loans are secured by vehicles.
Unamortized note discount related to warrants issued in connection with the above note payable with
PFGI II, LLC.
$ 1,319,000
232,000
129,000
52,000
Less current portion
Long term portion
(7,000)
1,725,000
(1,586,000)
139,000
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, 2012, the fair value of the contract was a liability of
$7,000. The liability has been recorded in other accrued liabilities.
$
As of September 30, 2012, principal payments on debt become due as follows:
Years Ending
September 30,
2013
2014
2015
2016
2017
$ 1,586,000
45,000
46,000
37,000
11,000
$ 1,725,000
4.
Other Accrued Liabilities :
Other accrued liabilities consist of the following at September 30, 2012:
Wages and other employee benefits
Taxes, other than income tax
Other
$
270,000
436,000
150,000
Total
$
856,000
5.
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 2012 and 2011.
F-11
Following is a summary of operating lease activities:
Minimum rentals
Less sublease rentals
Net rent paid
Year Ended
September 30,
2012
$
$
1,993,000
(405,000)
1,588,000
As of September 30, 2012, 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
2013
2014
2015
2016
2017
Thereafter
Less sublease rentals
$
1,903,000
1,699,000
1,301,000
1,131,000
1,132,000
4,325,000
11,491,000
(2,877,000)
$
8,614,000
The Company is contingently liable on the sublease rentals disclosed above. The subleased and assigned leases expire
between 2015 and 2024. In the past the Company has never been required to pay any significant amount in connection with
its guarantees and 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.
6.
Income Taxes :
Deferred tax assets (liabilities) are comprised of the following at September 30:
2012
2011
Current
Long Term
Current
Long Term
$
Deferred assets (liabilities):
Tax effect of net operating loss carry-
forward (includes $13,000 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
*
–
–
–
–
68,000
68,000
(68,000)
–
The valuation allowance decreased by $403,000 during the year ended September 30, 2012.
$ 2,666,000 $–
148,000 –
117,000 –
387,000 –
57,000
3,375,000
(3,375,000)
–
$ 3,128,000
147,000
126,000
339,000
43,000
3,783,000
(3,783,000)
–
63,000
63,000
(63,000)
–
$
$
$
$
The Company has net operating loss carry-forwards available for future periods, as discussed below, of approximately
$777,000 for 2012 and $3,200,000 from 2011 and prior for income tax purposes which expire from 2013 through 2032.
Based on the change in control, which occurred in 2011, the utilization of the loss carry-forwards incurred for periods prior
to 2012 is limited to approximately $160,000 per year.
F-12
Total income tax expense for the years ended 2012 and 2011 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
7.
Related Parties :
2012
2011
$
(272,000)
(23,000)
(403,000)
13,000
680,000
5,000
$ (355,000)
(31,000)
49,000
22,000
312,000
3,000
$
–
$
–
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 and modified under the Series C Convertible Preferred Stock agreement
entered into in June 2012.
The Company leases office space from The Bailey Company under a lease agreement which expires in December 2012, we
anticipate extending the lease beyond 2012. Rent paid to them in fiscal 2012 and 2011 for office space was $58,000 and
$55,000, respectively.
The Bailey Company was the owner of one franchised Good Times Drive Thru restaurant which is located in Loveland,
Colorado. The Company purchased this restaurant in August 2012 for a purchase price of approximately $100,000. The
Bailey Company had entered into a franchise and management agreement with us. Franchise royalties and management
fees paid under that agreement totaled approximately $44,000 and $53,000 for the fiscal years ending September 30, 2012
and 2011, respectively. Amounts due from The Bailey Company related to the agreement at September 30, 2012 and 2011
were $0 and $16,000, respectively.
In April 2012 the Company entered into a financial advisory services agreement with Heathcote Capital LLC pursuant to
which they will provide the Company with exclusive financial advisory services in connection with a possible strategic
transaction. Gary J. Heller, a member of the Company’s Board of Directors, is the principal of Heathcote Capital LLC.
Accordingly, the agreement constitutes a related party transaction and was reviewed and approved by the Audit Committee
of the Company’s Board of Directors. Total amounts paid to Heathcote Capital LLC in fiscal 2012 were $48,600, which are
deferred and included in other assets.
8.
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, 2012:
Level 2:
Interest Rate Swap liability:
Balance at September 30, 2011
Balance at September 30, 2012
Net change
$ 57,000
$ 7,000
$ 50,000
The unrealized gains for the years ending September 30, 2012 and September 30, 2011 of $20,000 and $27,000,
respectively, are reported in the Consolidated Statement of Operations. In conjunction with the amendment to the Wells
Fargo Bank note in December 2011 we paid down the interest rate swap liability by $30,000. There were no transfers in or
out of Level 3 for the year ending September 30, 2012.
F-13
9.
Stockholders’ Equity :
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.
In June 2012 the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Small Island
Investments Limited (“SII”), pursuant to which the Company agreed to sell 473,934 shares of a new series of the
Company’s preferred stock to be designated as “Series C Convertible Preferred Stock”, at a purchase price of $4.22 per
share, or an aggregate purchase price of $2,000,000. Pursuant to the Purchase Agreement, the closing of the Investment
Transaction was subject to the receipt of stockholder approval. Stockholder approval was obtained at the Annual Meeting
of Stockholders held September 14, 2012.
On September 28, 2012, the Company completed the sale and issuance of 355,451 shares of the Series C Preferred Stock to
SII, for an aggregate purchase price of $1,500,000. The Company has entered into a Supplemental Agreement with SII
which provides that SII will purchase the remaining Shares of Series C Preferred Stock under the Purchase Agreement in a
second closing to occur on or before March 31, 2013 at such time as the Company’s Board of Directors reasonably
determines, with 45 days’ prior notice to SII, that the Company requires such funds to maintain the minimum stockholders’
equity required under NASDAQ Listing Rules on the NASDAQ Capital Market.
Following are the rights, preferences, and privileges of the Shares:
•
•
•
•
Following the closing of the Investment Transaction, dividends shall accrue on shares of Series C Convertible
Preferred Stock at the rate of 8.0% per annum of the original issue price of $4.22 per share, with such dividends
payable quarterly. The dividends on shares of Series C Convertible Preferred Stock shall be payable prior and in
preference to any dividends on the Company’s Common Stock. In the event the Series C Convertible Preferred
Stock has not been converted to Common Stock within 18 months following the closing of the Investment
Transaction, thereafter (i) the rate of the dividends shall increase to 15.0% per annum from the date that is 18
months after the closing of the Investment Transaction until converted or redeemed by the Company, and (ii) the
Company may upon the approval of a majority of the disinterested members of the Board redeem all or from time
to time a portion of the Series C Convertible Preferred Stock by payment of its liquidation preference.
In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, or a
transaction which is deemed to be a liquidation pursuant to the Certificate of Designations, holders of Series C
Convertible Preferred Stock shall be entitled to receive a preference payment equal to the original issue price of
$4.22 per share, plus any accrued but unpaid dividends, before any assets of the Company are distributed to
holders of the Company’s Common Stock.
Shares of Series C Convertible Preferred Stock shall vote together with the Common Stock on an as-if-converted
basis. In addition, shares of Series C Convertible Preferred Stock shall have the right to vote, as a separate class,
on certain major corporate transactions for which the approval of the holders of a majority of the outstanding
shares of Series C Convertible Preferred Stock is required.
Shares of Series C Convertible Preferred Stock shall be convertible into shares of Common Stock at any time at
the option of the holder, at a conversion ratio shall be two shares of Common Stock for each share of Series C
Convertible Preferred Stock converted (subject to adjustment in the event of any stock split, combination,
reorganization, or reclassification of the Common Stock.)
The Company may require the conversion of all outstanding shares of Series C Convertible Preferred Stock into shares of
Common Stock at the above conversion ratio at any time after 36 months following the closing of the Investment
Transaction provided that the public trading price and the trading volume of the Common Stock meet certain criteria. In
addition, the Series C Convertible Preferred Stock shall automatically convert to Common Stock upon a qualified public
offering of the Company’s Common Stock provided that the size and price of such public offering or a sale of all or
substantially of the Company’s assets meet certain criteria.
The proceeds from the First Closing received on October 1, 2012 were used to pay approximately $40,000 of expenses
related to the transaction, repay $225,000 to Wells Fargo Bank and the balance going to increase the Company’s working
capital.
F-14
Common Stock Transactions - In October 2010, the Company and SII entered into a purchase agreement, pursuant to which
the Company agreed to sell 1,400,000 Shares of Common Stock at a purchase price of $1.50 per share, or $2,100,000.
Subsequently 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 provided 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 provided 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.
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. 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). All disclosures and amounts included herein have been retroactively restated to reflect the reverse split.
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”). Pursuant to stockholder approval in September 2012 the total number of shares available for issuance
under the 2008 Plan was increased to 500,000. As of September 30, 2012, 324,711 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.
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 2012 and 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, 2012 and 2011 includes $69,000 and $61,000, respectively, of
compensation costs related to our stock-based compensation arrangements.
During the fiscal year ended September 30, 2012, the Company granted a total of 34,000 non-statutory stock options with
exercise prices ranging from $1.31 to $2.12 and per-share weighted average fair values ranging from $1.07 to $1.79.
During the fiscal year ended September 30, 2011, the Company 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.
F-15
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:
Expected term (years)
Expected volatility
Risk-free interest rate
Expected dividends
Fiscal 2012
Non-Statutory Stock
Options
7.1 to 7.5
95.71 % to 104.8%
1.13% to 1.47%
0
Fiscal 2011
Incentive Stock
Options
6.5
98.5%
2.46%
0
Fiscal 2011
Non-Statutory 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.
A summary of stock option activity under our share-based compensation plan for the fiscal year ended September 30, 2012
is presented in the following table:
Outstanding-beg of year
Granted
Exercised
Forfeited
Expired
Outstanding Sept 30, 2012
Exercisable Sept 30, 2012
Options
166,022
34,000
0
(5,667)
(19,066)
175,289
112,418
Weighted Average Exercise
Price
$6.89
$1.37
$1.34
$5.25
$6.18
$8.60
Weighted
Average
Remaining
Contractual Life
(Yrs.)
Aggregate Intrinsic
Value
6.3
5.3
$0
$0
As of September 30, 2012, the total remaining unrecognized compensation cost related to unvested stock-based
arrangements was $23,000 and is expected to be recognized over a weighted average period of 1.21 years.
There was no intrinsic value of stock options exercised during the fiscal year ended September 30, 2012 as no options were
exercised.
Warrants - In connection with a prior loan agreement, the Company issued a three-year warrant to purchase up to 37,537
shares of the Company’s common stock at an exercise price of $3.33 per share through December 31, 2012. The fair value
of the warrant issued to PFGI II, LLC (see Note 3 above) 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.
In connection with certain other loans, the Company issued warrants to purchase 33,334 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.
The warrants expired on December 12, 2012.
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 is adjusted each period to reflect the limited partner’s share of the net income or loss as well as
any cash distributions to the limited partner for the period. 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.
F-16
10.
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 2012 or fiscal 2011.
11.
Subsequent Events :
At September 30, 2012 we classified $1,380,000 as assets held for sale in the accompanying consolidated balance sheet.
These costs are related to a site in Firestone, Colorado which has been fully developed. On November 30, 2012 we
completed a sale lease-back transaction on the property. The net sale leaseback proceeds of $1,380,000 were used to
reduce the PFGI II term loan by $765,000 and the balance to increase our working capital.
On November 30, 2012 we purchased the real estate underlying an existing restaurant from our landlord for $760,000. In
connection with the real estate purchase we have entered into an additional sale leaseback agreement that is expected to
close in January 2013 and we expect to recognize net proceeds of $870,000. We entered into an amendment to the PFGI II
loan agreement whereby we will repay the remaining loan balance out of the sale leaseback proceeds from the closing on
this sale leaseback transaction.
On December 5, 2012 we entered into an agreement to purchase a restaurant from a franchisee for a total of $1,250,000,
including the real estate and operating business with an anticipated closing date of December 31, 2012. We will pay
$650,000 in cash and issue a short term note of $600,000. We have entered into a sale leaseback agreement for the real
estate that we expect will yield approximately $1,050,000 in net proceeds by March 31, 2013.
F-17
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the two most recent fiscal years, Good Times 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) under the Securities Exchange
Act of 1934, as amended), as of the end of the Company’s fiscal year ended September 30, 2012, 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, 2012.
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, 2012, 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, 2012 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.
25
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors: The directors of the Company are as follows:
PART III
Name
Geoffrey R. Bailey
Age
61
Director
Since
1996 Member of the
Other Positions Held with
the Company
Compensation Committee
Neil Calvert
61
2012 1 Chairman of the Audit
Committee
Employment and Business Experience
Mr. Bailey is a director of The Erie County
Investment Co., which owns 99% of The Bailey
Company. The principal business of The Bailey
is owning and operating 51 Arby’s
Company
restaurants as a franchisee, and The Bailey Company
has also been a franchisee and joint venture partner of
the Company 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.
Mr. Bailey was selected to serve on our Board in
light of his substantial experience within
the
restaurant
industry and his broad knowledge
concerning corporate governance and management.
Mr. Calvert currently serves as an advisor to Lease
Corporation International, a London-based helicopter
leasing company (2011-present). Previously, Mr.
Calvert held various executive positions in the CHC
Group, and a subsidiary, Heli One, where he was
responsible for flight operations and maintenance
(1998-2011). As President of Heli One (2005-2011),
he had direct oversight of a Chief Financial Officer,
responsibility for preparation & accuracy of financial
statements, communication with
the company’s
auditors on all significant accounting policies and
review of financials with the board. Additionally, he
built the company into a $400 million business with
over 1,000 employees around the world. He also
served as Managing Director of the British operations
for CHC UK (1999-2003).
Mr. Calvert was selected to serve on our Board in
light of his various executive positions with major
companies and his experience overseeing and
assessing those companies’ performance.
David L. Dobbin
51
2010 Chairman of the Board Mr. Dobbin serves as Chairman of the Board of
Small Island Investments Limited (2010-present). In
addition, he serves as Chairman of the Board of
Welaptega Marine Ltd. (2008-present), a leading
supplier of offshore mooring inspection systems.
Prior to March 2012, he also served as Chairman of
the Boards of Terra Nova Pub Groups Ltd., and its
subsidiaries and affiliates, including Elephant &
Castle Group, Inc. (2007-2012).
26
Previously, Mr. Dobbin served in several capacities
with CHC Helicopter Corporation,
the world’s
leading offshore helicopter services provider, and led
Inc., a
Canadian Ocean Resource Associates
consulting firm specializing in international best
practice reviews in various sectors, third world
institutional support, and public/private partnerships.
Mr. Dobbin holds a Bachelor of Commerce degree
from Memorial University of Newfoundland.
Mr. Dobbin was selected to serve on our Board in
light of his substantial experience in the restaurant
industry and his experience as an investor in the
transportation, service, real estate, and hospitality
sectors.
Gary J. Heller was appointed as a director of the
Company effective upon the closing of SII’s initial
investment transaction in December 2010. He is
currently President of Heathcote Capital LLC, which
the Company has engaged to provide financial
advisory services. Mr. Heller also serves as Chief
Operating Officer of Il Mulino New York, which
operates and licenses fine dining Italian restaurants.
Previously, Mr. Heller served as a Managing
Director of FTI Capital Advisors, LLC 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.
Mr. Heller was selected to serve on our Board in light
of his substantial experience in the restaurant industry
and his experience as a financial advisor and an
investment banker.
Mr. Hoback has served as our President and Chief
Executive Officer since December 1992 and has been
in the restaurant business since the age of 16. Mr.
Hoback has been a vital part of the development of
the Company to a 46-restaurant chain and has been
involved in developing and managing all areas of the
Company. Mr. Hoback is an honors graduate of the
University of Colorado in Finance.
Mr. Hoback was selected to serve on our Board in
light of his in-depth understanding of our business
and the restaurant industry and his position as our
President and Chief Executive Officer.
Gary J. Heller
45
2010 Principal of Heathcote
Capital, LLC, financial
advisor to the Company;
Prior Member of the Audit
Committee (2010-2012);
Prior Chairman of the
Compensation Committee
(2010-2012) 2
Boyd E. Hoback
57
1992 President and Chief
Executive Officer
27
Eric W. Reinhard
54
2005 Member of the Audit and
Compensation Committees;
Prior Chairman of the
Board (2005-2010)
a beverage
Mr. Reinhard serves as President of the Pepsi Cola
association
Bottler’s Association,
management and consulting association
(2006-
present). 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. Mr. Reinhard
holds a BA from Michigan State University and has
completed the Executive Business Program at the
University of Michigan.
Alan A. Teran
67
2012 3 Member of the Audit
Committee; Chairman of
the Compensation
Committee
Mr. Reinhard was selected to serve on our Board in
light of his substantial experience within the beverage
industry and his broad knowledge concerning
corporate governance and management.
Mr. Teran is currently a principal in multiple private
restaurants. He previously served on our Board from
1994 to 2010. Mr. Teran also served as a Director of
Morton’s Restaurant Group, Inc. from 1994 until
February 2012. He served as president of the Cork &
Cleaver restaurant chain from 1975 to 1981 and
served as a Director for Boulder Valley National
Bank and Charlie Brown’s Restaurants. He was one
of the first franchisees of Le Peep Restaurants. Mr.
Teran graduated from the University of Akron in
1968 with a degree in business.
Mr. Teran was selected to serve on our Board in light
of his substantial experience within the restaurant
industry, his experience as an investor in multiple
private restaurants, and his prior service on our
Board.
1 Mr. Calvert was elected as a director on July 3, 2012 to fill the vacancy created by the resignation of Keith A. Radford effective June 30,
2012. On the same date, Mr. Calvert was appointed as chairman of the Audit Committee, to succeed Mr. Radford in such capacity.
2 Mr. Heller resigned as a member of the Audit Committee and as chairman of the Compensation Committee effective April 6, 2012, upon
the Company’s engagement of Heathcote Capital, LLC, a company of which Mr. Heller is the principal, as its financial advisor.
3 Mr. Teran was elected as a director effective April 10, 2012 to fill the vacancy created by the resignation of John F. Morgan on August 10,
2011. On the same date, Mr. Teran was appointed as a member of the Audit Committee and as the chairman of the Compensation
Committee, to succeed Mr. Heller in both capacities. Mr. Teran also served on our Board from 1994 to 2010.
28
As set forth above, prior to March 2012, Messrs. Dobbin and Heller each served as a director and executive officer of
Elephant & Castle Group Inc. On June 28, 2011, Elephant & Castle Group, Inc. and related subsidiaries (collectively, the
“Elephant & Castle Group”) filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. The
Elephant & Castle Group subsequently sold all of its assets in a sale under the bankruptcy proceedings.
There are no family relationships among the directors or between any director and any of our executive officers.
Geoffrey R. Bailey was originally elected to the Board 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. Mr.
Bailey has 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 and the subsequent modification of those contractual rights in connection with the closing of our initial investment
transaction with SII in December 2010, whereby The Bailey Group is entitled to designate one individual for election to our
Board.
Eric W. Reinhard was originally elected to the Board pursuant to contractual board representation rights granted to certain
investors in connection with our Series B Convertible Preferred Stock financing in February 2005 and the subsequent
modification of those contractual rights in connection with the closing of our initial investment transaction with SII in
December 2010, whereby Mr. Reinhard and his affiliates are entitled to designate one individual for election to our Board.
Messrs. Calvert, Dobbin, Heller, and Teran were originally elected to the Board pursuant to the director designation rights
granted to SII under the Securities Purchase Agreement dated October 29, 2010 between the Company and SII (the “Prior
Purchase Agreement”). The Prior Purchase Agreement provides that, for so long as SII continues to own at least 50% of
our outstanding capital stock, (i) our Board shall not consist of more than seven directors, and (ii) SII shall have the right to
designate four individuals for election to our Board. The Purchase Agreement between the Company and SII dated June
13, 2012 reconfirms and continues SII’s director designation rights as provided by the Prior Purchase Agreement. Pursuant
to both the Prior Purchase Agreement and the Purchase Agreement, SII has also agreed to vote its shares in any election of
directors for one individual designated by The Bailey Group and one individual designated by Mr. Reinhard and his
affiliates, in addition to the Investor’s four director designees. Mr. Hoback is the seventh member of our 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 the Company by April 15 of the year immediately preceding
the annual meeting.
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 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., Attention: Corporate Secretary, 601 Corporate Circle,
29
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 from
time to time based on the position and direction of the Company and the membership of the Board. However, the Board
has determined that separating these roles is in the best interests of the Company’s stockholders at this time. The Board
believes that 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 as a whole administers the Board’s risk oversight function. 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: The standing committees of the Board are the Audit Committee, which is currently comprised of
Messrs. Calvert (Chairman), Reinhard, and Teran, and the Compensation Committee, which is currently comprised of
Messrs. Bailey, Reinhard, and Teran (Chairman). As discussed under the heading “Nominee Selection Process” above,
there is no standing nominating committee of the Board and instead the Board as a whole acts as the nominating committee
for the selection of nominees for election as directors.
Prior to his resignation from the Board effective June 30, 2012, Keith Radford served as chairman of the Audit Committee.
Prior to April 6, 2012, Gary Heller served as a member of the Audit Committee and as chairman of the Compensation
Committee. Mr. Heller resigned from those positions (but not from our Board) on April 6, 2012 in connection with the
Company’s engagement of Heathcote Capital, LLC as a financial advisor.
Audit Committee : The Audit Committee currently consists of Messrs. Calvert (Chairman), Reinhard, and Teran. The
Board has determined that all of the members of the Audit Committee are “independent,” as defined by the NASDAQ
listing standards and by applicable SEC rules. In addition, the Board has determined that Mr. Calvert is an audit committee
financial expert, as that term is defined by the SEC rules, by virtue of having the following attributes through relevant
experience: (i) an understanding of generally accepted accounting principles and financial statements; (ii) the ability to
assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; (iii)
experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity
of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected
to be raised by the Company’s financial statements, or experience actively supervising one or more persons engaged in
such activities; (iv) an understanding of internal controls and procedures for financial reporting; and (v) an understanding
of audit committee functions. Prior to his resignation from the Board effective June 30, 2012, Keith Radford served as our
audit committee financial expert.
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. A current copy of the Audit Committee Charter is available on our website at www.goodtimesburgers.com. The
Audit Committee held five meetings during the fiscal year ended September 30, 2012.
Compensation Committee : The Compensation Committee currently consists of Messrs. Bailey, Reinhard, and Teran
(Chairman). The Board has determined that all of the members of the Compensation Committee are “independent,” as
defined by the NASDAQ listing standards. The function of the Compensation 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 the fiscal year
ended September 30, 2012.
The Compensation Committee does not have a written 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 this
Annual Report on 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
30
the Chief Executive Officer’s performance in light of those goals and objectives. The Compensation Committee also
recommends to the Board the compensation and benefits for members of the Board. The Compensation Committee has
also been appointed by the Board to administer our 2008 Omnibus Equity Incentive Compensation Plan, which is the
successor equity compensation plan to the Company’s 2001 Stock Option 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.
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 the fiscal year ended September 30, 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 2011 was attended by Messrs. Bailey, Calvert, Dobbin, Heller,
Hoback and Teran. Mr. Reinhard was absent.
A description of the standard compensation arrangements (such as fees for Board and committee service and for meeting
attendance) is set forth in the section entitled “Directors’ Compensation” in Item 11 below.
Audit Committee Report: The Company’s management is responsible for the internal controls and financial reporting
process for the Company. The independent accountants for the Company 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
Company’s financial statements for the fiscal year ended September 30, 2012. 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.
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 Company’s Annual Report on Form 10-K for the
fiscal year ended September 30, 2012 for filing with the SEC.
Executive officers: The executive officers of the Company are as follows:
Name
Boyd E. Hoback
Susan M. Knutson
Scott G. LeFever
Age
57
54
54
Position
President & CEO
Controller
VP of Operations
Date Began With Company
September 1987
September 1987
September 1987
32
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 : The Company has adopted a Code of Business Conduct which applies to all directors, officers, employees,
and franchisees of the Company. The Code of Business Conduct was filed as an exhibit to the Company’s Annual Report
on Form 10-KSB for the fiscal year ended September 30, 2003. The Code of Business Conduct is also available on the
Company’s website at www.goodtimesburgers.com.
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 the Company. The SEC has designated specific deadlines for these reports and the Company 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 the Company and written representations received from reporting persons
the Company believes that during the fiscal year ended September 30, 2012 all Section 16(a) filing requirements for its
officers, directors, and more than ten percent shareholders were complied with on a timely basis, except that SII and David
Dobbin filed a Form 4 on December 19, 2012 to report their beneficial ownership of the Series C Convertible Preferred
Stock acquired by SII on September 28, 2012.
ITEM 11.
EXECUTIVE COMPENSATION
Executive Compensation: The following table sets forth compensation information for 2012 and 2011 with respect to the
named executive officers:
Summary Compensation Table for 2012 and 2011:
Name
and
Principal Position Year Salary $ Bonus $
Stock
Awards
$
Option
Awards $ 3
Non-Equity
Incentive Plan
Compensation $
Nonqualified
Deferred
Compensation
Earnings $
All Other
Compensation $ Total $
Boyd E. Hoback
President & Chief
Executive Officer
Scott G. LeFever
Vice President of
Operations
1
2
3
2012
147,000
2011
133,000
2012
2011
87,542
75,000
_
_
_
_
_
_
_
_
12,410
17,816
4,309
9,565
_
_
_
_
_
_
_
_
18,063 1
16,961 1
12,435 2
12,470 2
177,473
167,777
104,286
97,035
The amount indicated for Mr. Hoback includes an automobile allowance, long-term disability and personal expenses.
The amount indicated for Mr. LeFever includes an automobile allowance and long-term disability.
The value of stock option awards shown in this column includes all amounts expensed in the Company's financial statements in 2011
and 2012 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 2012 consolidated financial statements included in the Company’s Annual
Report on Form 10-K for the fiscal year ended September 30, 2012. There were no option awards re-priced in 2012.
There were no shares of SARs granted during 2012 or 2011 nor has there been any nonqualified deferred compensation paid to any
named executive officers during 2012 or 2011. The Company does not have any plans that provide for specified retirement payments
and benefits at, following or in connection with retirement.
33
The following table sets forth information as of September 30, 2012 on all unexercised options previously awarded to the named executive officers:
Outstanding Equity Awards at 2012 Fiscal Year-End
Option Awards
Name
Boyd E. Hoback
Scott G. LeFever
Number of
Securities
Underlying
Unexercised
Options -
Exercisable (#)
1,250
1,300
4,000
2,833
6,333
9,501
0
0
5,000
420
860
1,917
1,917
1,917
5,669
0
0
Number of
Securities
Underlying
Unexercised
Options -
Unexercisable (#)
_
_
_
_
4,551 (1)
10,647 (2)
_
_
_
_
1,449 (1)
7,985 (2)
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
Option
Exercise
Price $
Option
Expiration
Date
$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
$1.31 12/14/21
$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 ($)
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
1 The options were granted on November 6, 2009. the shares under the option agreements will become fully exercisable on November 6, 2012, following the end of the 2012 fiscal year.
2 The options were granted on December 13, 2010. Assuming continued employment with the Company, the shares under the option agreements will become fully exercisable on
December 6, 2013.
(The numbers of options and the exercise prices shown in this table have been adjusted to effect the one for three reverse stock split that occurred on December 31, 2010.)
34
The following table sets forth compensation information for the fiscal year ended September 30, 2012 with respect to
directors:
Director Compensation Table for Fiscal Year 2012
Name
Geoffrey R. Bailey
David Dobbin
Gary Heller
Eric W. Reinhard
Keith Radford 3
Alan Teran
Neil Calvert
Boyd E. Hoback 4
Fees Earned
or Paid in
Cash ($)
1,700
2,200
2,100
1,800
1,000
1,800
800
_
Stock
Awards
($)
_
_
_
_
_
_
_
_
Option
Awards
($) 1, 2
5,281
5,281
5,281
5,281
5,281
3,574
2,469
_
Non-Equity
Incentive Plan
Compensation ($)
_
_
_
_
_
_
_
_
Nonqualified
Deferred
Compensation
Earnings $
_
_
_
_
_
_
_
_
All Other
Compensation $ Total $
6,981
7,481
7,381
7,081
6,281
5,374
3,269
0
_
_
_
_
_
_
_
_
1 The value of stock option awards shown in this column includes all amounts expensed in the Company's financial statements in
2012 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 2012 consolidated financial statements included in the Company’s Annual Report
on Form 10-K for the fiscal year ended September 30, 2012. There were no option awards re-priced in 2012.
2 As of September 30, 2012, the following directors held options to purchase the following number of shares of our common stock:
Mr. Bailey 10,333 shares; Mr. Dobbin 5,667 shares; Mr. Heller 5,667 shares; Mr. Reinhard 11,167 shares; Mr. Teran 2,000 shares;
Mr. Calvert 2,000; and Mr. Hoback 45,414 shares.
3 Mr. Radford resigned as a director effective as of June 30, 2012. Mr. Radford’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.
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, 2012, each director, with the exception of
Messrs. Calvert and Teran, received a non-statutory stock option to acquire 5,000 shares of Common Stock at an exercise
price of $1.31 per share. Mr. Teran received a non-statutory stock option to acquire 2,000 shares of Common Stock at an
exercise price of $2.12 per share in June 2012, when he was elected to the Board to fill the vacancy resulting from John
Morgan’s resignation. Mr. Calvert received a non-statutory stock option to acquire 2,000 shares of Common Stock at an
exercise price of $1.46 per share in September 2012, when he was elected to the Board to fill the vacancy resulting from
Keith Radford’s resignation.
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 initial 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 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
35
company’s level of EBITDA for the year and achieving certain operating metrics and sales targets.
Heathcote Agreement : On April 6, 2012, the Company entered into a financial advisory services agreement with
Heathcote Capital LLC ("Heathcote"), pursuant to which the Company engaged Heathcote to provide exclusive financial
advisory services in connection with a possible strategic transaction. No such transaction has yet occurred, but the
Company continues to consider possible strategic alternatives. Gary J. Heller, a member of the Company’s Board of
Directors, is the principal of Heathcote. In fiscal 2012, the Company paid a total of $48,600 in fees to Heathcote.
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 the Company’s Common Stock as of December 17, 2012 by each person known by the Company to
be the beneficial owner of more than five percent of the shares of the Company’s 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.
Holder
Principal stockholders:
Small Island Investments Ltd.
The Bailey Co.
The Erie Co. Investment Co.
Directors and Officers:
Geoffrey R. Bailey-Director
David L. Dobbin-Director
Gary J. Heller-Director
Boyd E. Hoback-Director/Officer
Sue M. Knutson-Officer
Scott G. Lefever-Officer
Alan A. Teran – Director
Eric Reinhard-Director
Neil Calvert-Director
All directors and executive officers as a group (9 persons including all those
named above)
14,766 3
2,099,903 4
5,667 5
43,964 6
6,847 7
12,279 8
35,069 9
109,334 10
2,000 11
Number of shares
beneficially owned
2,094,236 1
273,837 2
338,730 2
*
60.99%
*
1.59%
*
*
1.28%
3.98%
*
60.93%
10.04%
12.42%
Percent of
class**
2,330,029 12
65.24%
1 Small Island Investments Ltd. is owned and controlled by director David L. Dobbin and members of his family.
2 The Bailey Company is 99% owned by The Erie County Investment Co., which should be deemed the beneficial owner of the
Company’s Common Stock held by The Bailey Company. The Erie County Investment Co. also owns 194,680 shares of the
Company’s 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 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 Common Stock held by The Bailey Company and The Erie
County Investment Co.
Includes 10,333 shares underlying presently exercisable stock options.
Includes shares of Common Stock held beneficially by Small Island Investments Ltd. Also includes 5,667 shares underlying
presently exercisable stock options held by Mr. Dobbin.
Includes 5,667 shares underlying presently exercisable stock options.
Includes 28,967 shares underlying presently exercisable stock options.
Includes 6,847 shares underlying presently exercisable stock options.
Includes 12,279 shares underlying presently exercisable stock options.
Includes 2,000 shares underlying presently exercisable stock options and 5,834 warrants to purchase stock. Mr. Teran was elected
as a director effective April 10, 2012 to fill the vacancy created by the resignation of John Morgan on August 10, 2011.
5
6
7
8
9
3
4
10 Includes 11,167 shares underlying presently exercisable stock options and 12,500 warrants to purchase stock.
11 Mr. Calvert was elected as a director on July 3, 2012 to fill the vacancy created by the resignation of Keith Radford effective June
30, 2012.
12 Does not include shares of Common Stock held beneficially by The Bailey Company and The Erie County Investment Co. If
those shares were included, the number of shares of Common Stock beneficially held by all directors and executive officers as a
group would be 2,668,759 and the percentage of the class would be 74.72%.
* 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.
37
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
Transactions with Related Persons :
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 $58,000 per year. The lease expires December 31, 2012 and we anticipate
extending the lease beyond 2012.
The Bailey Company was the owner of one franchised Good Times Drive Thru restaurant which is located in Loveland,
Colorado. The Company purchased this restaurant in August 2012 for a purchase price of approximately $100,000. The
Bailey Company was also previously the owner of one franchised restaurant in Thornton, Colorado which was closed in
October 2009. The Bailey Company had entered into two franchise and management agreements with us. Franchise
royalties and management fees paid under those agreements totaled approximately $44,000 and $53,000 for the fiscal years
ending September 30, 2012 and 2011, respectively.
In December 2010, the Company repaid an outstanding loan from Golden Bridge, LLC (“Golden Bridge”), in the principal
amount of $185,000 plus accrued interest thereon in the amount of $18,000. Directors Eric Reinhard and Alan Teran and
former directors Ron Goodson, David Grissen, and Richard Stark, 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 repayment of the
Golden Bridge loan was duly approved in advance by our Board by the affirmative vote of members thereof who did not
have an interest in the transaction.
On April 6, 2012, the Company entered into a financial advisory services agreement with Heathcote Capital LLC
(“Heathcote”), pursuant to which the Company engaged Heathcote to provide exclusive financial advisory services in
connection with a possible strategic transaction. No such transaction has yet occurred, but the Company continues to
consider possible strategic alternatives. Heathcote’s services to the Company may include identifying and contacting
potential acquisition targets and/or sources of financing for the Company, advising and assisting the Company in evaluating
various structures and forms of any transaction, assisting in the preparation of proposals and evaluation of offers, and
assisting the Company in negotiating the financial aspects of the transaction. In fiscal 2012, the Company paid a total of
$48,600 in fees to Heathcote.
Gary J. Heller, a member of the Company’s Board of Directors, is the principal of Heathcote. Accordingly, the Company’s
agreement with Heathcote constitutes a related party transaction and was reviewed and approved by the Audit Committee
of the Company’s Board of Directors. Mr. Heller did not participate in the Audit Committee’s consideration of the
agreement and abstained from the committee’s vote to approve the agreement. Concurrently with the Company’s
engagement of Heathcote, Mr. Heller resigned as a member of the Audit Committee and as Chairman of the Compensation
Committee, though he continues to serve on our Board.
On June 13, 2012, the Company entered into the Purchase Agreement with SII, pursuant to which the Company agreed to
issue and sell to SII, and SII agreed to purchase, 473,934 shares of newly designated Series C Convertible Preferred Stock
for an aggregate purchase price of $2,000,001.48 (i.e., $4.22 per share), subject to the satisfaction of certain conditions
precedent set forth in the Purchase Agreement. At the time the Company and SII entered into the Purchase Agreement, SII
held 50.8% of our outstanding Common Stock. In addition, David L. Dobbin, the Chairman of our Board, is a principal of
SII. Accordingly, the Purchase Agreement constitutes a related party transaction and was reviewed and approved by the
Audit Committee.
On September 28, 2012, we completed the sale and issuance of 355,451 shares of Series C Convertible Preferred Stock to
SII for an aggregate purchase price of $1,500,000. As a result of this issuance, SII’s beneficial ownership interest in the
Company increased from 50.8% to 60.9%. We also entered into a Supplemental Agreement with SII, dated September 28,
2012, and further amended on October 16, 2012, pursuant to which we extended the time period for SII to complete its
purchase of the remaining shares of Series C Convertible Preferred Stock under the Purchase Agreement. Pursuant to the
Supplemental Agreement, as amended, SII has agreed to complete its purchase of an additional 118,483 shares of Series C
Convertible Preferred Stock, for an additional aggregate purchase price of $500,000, on or before March 31, 2013, at such
time as the Company’s Board of Directors reasonably determines, with 45 days’ prior notice to SII, that the Company
requires such funds to maintain the minimum stockholders’ equity required under NASDAQ Listing Rule 5550(b) for
continued listing on The NASDAQ Capital Market.
38
Each share of Series C Convertible Preferred Stock is convertible at the option of the holder into two shares of Common
Stock, subject to certain anti-dilution provisions. The shares of Series C Convertible Preferred Stock will accrue dividends
at the rate of 8.0% per annum of the original issue price of $4.22 per share, with such accrued dividends payable quarterly.
In the event the Series C Convertible Preferred Stock has not been converted to Common Stock within 18 months
following the issuance thereof, thereafter (i) the rate of the accrued dividends shall increase to 15.0% per annum from the
date that is 18 months after the issuance thereof until converted or redeemed by the Company, and (ii) the Company may
upon the approval of a majority of the disinterested members of the Board of Directors redeem all or from time to time a
portion of the Series C Convertible Preferred Stock by payment of its liquidation preference. The shares of Series C
Convertible Preferred Stock also have additional voting rights, restrictions and provisions as disclosed in our Proxy
Statement filed on August 10, 2012.
The Purchase Agreement reconfirms and continues the director designation rights granted to SII under the Securities
Purchase Agreement dated October 29, 2010 between the Company and SII (the “Prior Purchase Agreement”). Both the
Purchase Agreement and the Prior Purchase Agreement provide that, for so long as SII continues to own at least 50% of the
Company’s outstanding capital stock, (i) our Board shall not consist of more than seven directors, and (ii) SII shall have the
right to designate four individuals for election to our Board. Pursuant to both the Purchase Agreement and the Prior
Purchase Agreement, SII has also agree to vote its shares in any election of directors for one individual designated by The
Bailey Group and one individual designated by Mr. Reinhard and his affiliates, in addition to the Investor’s four director
designees. If either The Bailey Group or Mr. Reinhard and his affiliates cease 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 rights 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.
Neil Calvert, David L. Dobbin, Gary J. Heller, and Alan A. Teran are the current directors designated by SII. 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.
The Purchase Agreement further provides that, for so long as SII continues to hold at least 75% of the shares of Series C
Convertible Preferred Stock and/or the shares of Common Stock issuable upon conversion thereof, SII will have a right of
first refusal to purchase additional securities which are offered by the Company on the same terms as offered for the
purpose of maintaining its percentage ownership interest in the Company as of the Closing of the Investment Transaction.
Director Independence : The Company’s Common Stock is listed on the NASDAQ Capital Market under the trading
symbol “GTIM”. NASDAQ listing rules require that a majority of the Company’s directors be “independent directors” as
defined by NASDAQ corporate governance standards.
The Board has determined that of the current directors Messrs. Bailey, Calvert, Reinhard, and Teran are independent
directors under the NASDAQ listing standards, while Messrs. Dobbin, Heller, and Hoback are not independent under such
standards. The Board has also determined that each of the three current members of the Audit Committee is “independent”
for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934 under the rules of the Securities and Exchange
Commission (“SEC”) promulgated thereunder. In addition, the Board previously determined that Mr. Radford qualified as
an independent director under both the NASDAQ listing standards and SEC rules until his resignation from the Board
effective June 30, 2012, and that Mr. Heller qualified as an independent director under both the NASDAQ listing standards
and SEC rules prior to the Company’s engagement of Heathcote as the Company’s financial advisor on April 6, 2012.
The Compensation Committee currently consists of Messrs. Bailey, Reinhard, and Teran, each of whom the Board has
determined to be “independent” under the NASDAQ listing standards. The Board does not have a standing nominating
committee. Rather, our Board of Directors as a whole acts as the nominating committee for the selection of nominees for
election as directors.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
INDEPENDENT PUBLIC ACCOUNTANTS: The Board of Directors appointed HEIN & ASSOCIATES LLP as the
Company’s independent auditors for the fiscal year ended September 30, 2011 and fiscal year 2012, 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.
39
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, 2012, and its reviews of the financial
statements included in the Company’s Forms 10-Qs for fiscal year 2012 were $76,095 compared to $71,482 in fees for the
fiscal year ended 2011.
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, 2012 and September 30, 2011.
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, 2012 were $14,000 compared to $10,500 in fees for the fiscal year ended
September 30, 2011.
All Other Fees: The aggregate fees billed to the Company for all other services rendered by HEIN & ASSOCIATES LLP
for fiscal year 2012 were $15,270 compared to $14,030 in fees for the fiscal year ended September 30, 2011. 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, 2012, 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, 2012 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.
40
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following exhibits are furnished as part of this report:
Exhibit
Description
PART IV
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
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)
Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock of Good Times
Restaurants dated September 17, 2012 (previously filed as Exhibit 3.1 to the registrant’s Form 8-K Report
dated September 20, 2012 (File No. 000-18590)
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)
41
Exhibit
10.11
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
Description
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)
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)
42
Exhibit
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
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)
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)
Engagement Letter (previously filed as Exhibit 10.1 to the registrant’s Form 8-K Report dated April 11, 2012
(File No. 000-18590) and incorporated herein by reference)
Securities Purchase Agreement dated June 13, 2012 (previously filed as Exhibit 10.1 to the registrant’s Form 8-
K Report dated June 19, 2012 (File No. 000-18590)
Supplemental Agreement dated September 28, 2012 (previously filed as Exhibit 10.1 to the registrant’s Form
8-K Report dated October 1, 2012 (File No. 000-18590)
Amendment to Supplemental Agreement dated October 16, 2012 (previously filed as Exhibit 10.1 to the
registrant’s Form 8-K Report dated October 16, 2012 (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
43
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.
Date: December 28, 2012
GOOD TIMES RESTAURANTS INC.
/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
Date: December 28, 2012
/s/ Geoffrey R. Bailey
Geoffrey R. Bailey, Director
Date: December 28, 2012
/s/ Gary J. Heller
Gary J. Heller, Director
Date: December 28, 2012
/s/ Boyd E. Hoback
Boyd E. Hoback, Director and
President and CEO
Date: December 28, 2012
/s/ Susan M. Knutson
Susan M. Knutson, Controller and
Principal Financial Officer
Date: December 28, 2012
/s/ Neil Calvert
Neil Calvert, Director
Date: December 28, 2012
/s/ Eric W. Reinhard
Eric W. Reinhard, Director
Date: December 28, 2012
/s/ Alan A. Teran
Alan A. Teran, Director
Date: December 28, 2012
44
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference of our report dated December 28, 2012, 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 Statements with registration numbers 333-122890 and 333-165189 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.
/s/ Hein & Associates LLP
Hein & Associates LLP
Denver, Colorado
December 28, 2012
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Boyd E. Hoback, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Good Times Restaurants Inc.;
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;
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;
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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 28, 2012
/s/ Boyd E. Hoback
Boyd E. Hoback
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF THE CONTROLLER
I, Susan M. Knutson, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Good Times Restaurants Inc.;
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;
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;
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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 28, 2012
/s/ Susan M. Knutson
Susan M. Knutson
Controller
Exhibit 32.1
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, 2012 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)
(2)
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
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ Boyd E. Hoback
Boyd E. Hoback
Chief Executive Officer
December 28, 2012
/s/ Susan M. Knutson
Susan M. Knutson
Controller (principal financial officer)
December 28, 2012