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, 2013
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission file number 000-18590
GOOD TIMES RESTAURANTS INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or
organization)
601 Corporate Circle, Golden, Colorado
(Address of principal executive offices)
84-1133368
(I.R.S. Employer Identification Number)
80401
(Zip Code)
Issuer ’ s telephone number: (303) 384-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $.001 par value, Preferred Stock $.001 par
Name of each exchange on which registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
No [ ]
Yes [ ]
Yes [ ]
No [x]
No [x]
Yes [x]
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant ’ s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See 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 [ ]
Indicate by check mark whether the registration is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
As of December 9, 2013, the aggregate market value of the 3,057,958 shares of common stock held by non-affiliates of the
issuer, based on the closing sales price of the common stock on December 9, 2013 of $2.60 per share as reported on the
NASDAQ Capital Market, was $7,950,691.
As of December 9, 2013, the issuer had 4,926,214 shares of common stock outstanding.
Accelerated Filer [ ] Non-Accelerated Filer [ ]
Smaller Reporting Company[x]
Yes [ ] No [x]
No [x]
Yes [ ]
[ ]
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
PAGE
1
12
18
18
19
19
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
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 Rule 13a-14(a)/15d-14(a)
Certification of Controller pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer and Controller pursuant to 18 U.S.C. Section 1350
20
22
23
28
28
28
28
28
29
29
29
29
29
30
33
ITEM 1.
BUSINESS
PART I
Overview: Good Times Restaurants Inc., a Nevada corporation (the “ Company ” ), was organized in 1987. Through our
wholly-owned subsidiary, Good Times Drive Thru Inc. ( “ Drive Thru ” ), we are 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. Over the last two years, we have sold or closed a small number of
under-performing restaurants which has increased working capital and improved operating margins. We have also repaid
all of our bank debt, increased our equity and significantly improved the profitability of the Company.
As described below under “ Recent Developments, ” we recently entered into a series of agreements with Bad Daddy ’ s
International, LLC, a North Carolina limited liability company ( “ BDI ” ), and Bad Daddy ’ s Franchise Development,
LLC, a North Carolina limited liability company ( “ BDFD ” ), to acquire the exclusive development rights for Bad Daddy ’
s Burger Bar restaurants in Colorado, additional restaurant development rights for Arizona and Kansas through our wholly
owned subsidiary BD of Colorado LLC, ( “ BD of Colo ” ) and a 48% voting ownership interest in the Bad Daddy ’ s
Burger Bar franchisor entity, BDFD (collectively, the “ Bad Daddy ’ s Transaction ” ).
BD of Colo is engaged in the business of developing, owning and operating full service hamburger-oriented restaurants
under the name Bad Daddy ’ s Burger Bar. The Company manages BDFD under a management agreement and BDFD is
engaged in the business of franchising Bad Daddy ’ s Burger Bar restaurants across the country. We do not consolidate the
operations of BDFD in our financial statements and account for our 48% ownership interest under the equity method of
accounting.
The terms “ Good Times ” , “ we ” , “ us ” and “ our ” where used herein refer to the operations of Drive Thru, BD of
Colorado and of the Company.
Financial & Brand Highlights
•
•
•
•
•
•
•
•
•
•
•
•
We have had thirteen consecutive quarters of same store sales growth.
We had an 11.9% increase in same store sales for the fiscal year ended September 30, 2013 ( “ fiscal 2013 ” ),
including eight consecutive months of double digit same store sales increases through November 30, 2013.
We have recently repaid all of our bank and term debt and have $6,100,000 in cash on our balance sheet as of the
end of fiscal 2013.
Our loss from operations improved by $1,247,000 in the fiscal year ended September 30, 2011 ( “ fiscal 2011 ” )
compared to the fiscal year ended September 30, 2010 ( “ fiscal 2012 ” ), by an additional $191,000 in the fiscal
year ended September 30, 2012 ( “ fiscal 2012 ” ) compared to fiscal 2011, and by an additional $181,000 in fiscal
2013 compared to fiscal 2012, exclusive of $99,000 in preopening costs in fiscal 2013 associated with BD of Colo
’ s first restaurant under development.
Our net revenues for fiscal 2013 increased by $3,186,000 (+16.2%) to $22,892,000 from $19,706,000 in fiscal
year 2012, primarily due to increased same store sales, the introduction of breakfast and the purchase of two
franchised restaurants.
Our loss from operations was $392,000 in fiscal 2013 compared to $474,000 in fiscal 2012.
Our net loss was $544,000 for fiscal 2013 compared to $668,000 for fiscal 2012.
In November, 2012 we introduced a new breakfast menu that is already generating over 9% of total sales.
During fiscal 2012, we began a reimaging and remodeling program for our older restaurants that we plan to
complete in 2014.
We recently introduced a new All Natural, Hand Breaded Chicken Tenderloin platform to replace our prior
chicken item. We have increased the category ’ s sales mix from approximately 8% of total sales to over 13%.
We believe Good Times is the only quick service restaurant concept in Colorado offering all natural beef and
chicken with no hormones, no steroids, no antibiotics and humanely raised, vegetarian fed animals with no animal
byproducts in the feed.
We began a new television campaign the last week of March 2013 for the first time in over three years, which has
contributed to our continued same store sales increases through fiscal 2013 in addition to the new breakfast menu,
1
the new chicken platform and other menu innovations.
•
We recently signed a new five-year distribution agreement with Food Services of America that we believe will
lower our overall cost of sales as a percentage of sales as a result of improved distribution and purchasing costs.
•
•
Over the last two years, we have sold three underperforming restaurants for cash and have purchased two high
volume franchised restaurants from franchisees. We anticipate the effect will be continued improvement in our
income from operations margin as a percentage of sales.
We plan to build additional Good Times Burgers & Frozen Custard company-owned restaurants in Colorado,
utilizing our 1,900 - 2,000 square foot, 40 seat dining room design.
Recent Developments
After looking at over two dozen concepts for possible acquisition over the last year, we have entered into a series of
agreements with BDI and BDFD to acquire the exclusive development rights for Bad Daddy ’ s Burger Bar restaurants in
Colorado, additional restaurant development rights for Arizona and Kansas, and a 48% voting ownership interest in the
franchisor entity, BDFD, for the offering of Bad Daddy ’ s Burger Bar restaurant franchises.
Bad Daddy ’ s Burger Bar is a relatively new restaurant concept that has been in existence for approximately three years.
There are currently eight existing Bad Daddy ’ s Burger Bar restaurants, seven of which are located in North Carolina and
one in South Carolina, including an airport concession licensed to Host Marriot Services in the Charlotte, N.C. airport. Of
the existing restaurants, three have been open for more than one year.
BDI is owned by Dennis Thompson, a restaurant entrepreneur who has developed and taken public or sold multiple
concepts (Lone Star Steakhouse, Bailey ’ s Sports Grille, Fox & Hound Pub, Firebird ’ s Woodfired Grill), and by Frank
Scibelli, a local restaurateur operating multiple highly successful, award winning concepts including Mama Ricotta ’ s,
Cantina 1511, Midwood Smokehouse Barbeque, and Paco ’ s Tacos and Tequila. Our criteria for acquiring a new growth
concept were threefold:
1.
2.
3.
A highly differentiated concept exhibiting high customer loyalty;
Industry leading unit economic model exceeding a 40% cash on cash return; and
Experienced management that intends to participate in the future growth and development of the concept.
We believe that Bad Daddy ’ s Burger Bar can meet each of these objectives and that our relationship with BDI and BDFD
can provide the vehicle for leveraging our existing infrastructure in administration, accounting, information technology,
purchasing, human resources and training, marketing and operating systems and processes in partnering with the Bad
Daddy ’ s Burger Bar founders who have serial restaurant experience and who can provide brand leadership and strategy as
the Bad Daddy ’ s Burger Bar concept is expanded. Bad Daddy ’ s Burger Bar operates in a different segment of the
restaurant industry than Good Times Burgers & Frozen Custard as a full service, upscale casual restaurant concept with a
chef-driven menu specializing in signature recipes, gourmet burgers, sandwiches, salads, appetizers and desserts, with a full
bar specializing in craft microbrews. Based on our continued review of their electronic point of sale system data that
immediately captures each customer transaction in each of their three existing restaurants that have been open for more than
one year, we have determined that Bad Daddy ’ s Burger Bar average sales and average customer check per restaurant are
materially higher than the Good Times Burgers & Frozen Custard average sales and average check per restaurant.
In April, 2013, we purchased the 48% interest in BDFD for an aggregate subscription price of $750,000. The subscription
price was payable in two equal installments, the first $375,000 installment was paid on the date of execution of the
Subscription Agreement, and the remaining $375,000 installment was paid in December 2013. The Company accounts for
this investment using the equity method.
On August 21, 2013 we completed a public offering of 2,200,000 shares of common stock, together with warrants to
purchase 2,200,000 shares of our common stock ( “ A Warrants ” ) and additional warrants to purchase 1,100,000 shares of
our common stock ( “ B Warrants ” ) with a per unit purchase price of $2.50. One share of common stock was sold together
with one A Warrant, with each A Warrant being exercisable on or before August 16, 2018 for one share of common stock
at an exercise price of $2.75 per share, and together with one B Warrant, with two B Warrants being exercisable on or
before May 16, 2014 for one share of common stock at an exercise price of $2.50 per share.
Per Share
Public offering price
$2.500
Underwriting discounts and commissions $0.175
$2.325
Proceeds, before expenses, to us
$0.207
Expenses
$2.118
Net proceeds, to us
2
Total
$5,500,000
$385,000
$5,115,000
$456,000
$4,659,000
We intend to use the net proceeds from this offering for our remaining required equity contribution to BDFD; for the
remodeling and reimaging of existing Good Times Burgers & Frozen Custard restaurants; for the development of new Bad
Daddy ’ s Burger Bar restaurants through BD of Colo; and as working capital reserves and future investment at the
discretion of our Board of Directors.
In October, 2013 we hired Bill McClintock as Vice President of Franchise Development for BDFD to develop a national
franchise program to multi-unit operators for Bad Daddy ’ s. Mr. McClintock is the former Vice President of Franchising
and Real Estate for Buffalo Wild Wings and McCallister ’ s Deli.
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 entered into a sale leaseback agreement that was completed on January 25,
2013 with net proceeds of $870,000. The net proceeds were used to pay in full the remaining PFGI II term loan of
$531,000 and to increase our working capital.
On December 31, 2012 we purchased a restaurant from a franchisee for total consideration of $1,256,000, including the real
estate and operating business. We paid $656,000 in cash and issued a short term note of $600,000. We completed a sale
leaseback transaction on March 1, 2013 for the real estate with net proceeds of $1,085,000. The net proceeds were used to
pay in full the $600,000 short term note and to increase our working capital.
On May 1, 2013 we purchased a restaurant from a franchisee for total cash consideration of $75,000, including the
equipment and operating business.
Concepts :
Good Times Burgers & Frozen Custard
We operate Good Times Burgers & Frozen Custard restaurants with two different formats that have evolved over the
course of our history: a smaller, 880 to 1,000 square foot building without indoor seating that is focused on drive-through
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
13 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 us and feels better about choosing Good Times Burgers & Frozen Custard over the larger hamburger
QSR brands due to the quality of our ingredients and brand personality. As a result we have developed a communications
umbrella called “ Happiness Made to Order ” with three primary brand pillars of Innovation, Quality and
Connectedness. All of our product initiatives are designed to support a brand position that adds differentiation to our
concept within the landscape of QSR competitors, particularly in the hamburger segment. Within Innovation we strive to
create products and flavor profiles available only at Good Times Burgers & Frozen Custard 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 Burgers & Frozen Custard will be the only QSR chain in the region
serving Fresh All Natural Angus beef and All Natural 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 2014, we plan to focus on our new chicken platform, the new breakfast menu, and
continued improvements in our core menu offerings, including packaging changes.
3
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 QSR
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,
steroids and antibiotics and humanely raised with no 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.
Bad Daddy ’ s Burger Bar
Bad Daddy ’ s Burger Bar operates in the emerging “ small box, ” grill and bar segment, which has a higher average check
and we believe is a step above fast casual concepts such as Five Guys and Smashburger and casual theme concepts such as
Chili ’ s and Red Robin in terms of food quality and price points, but below “ polished casual ” or sports themed big box
concepts, such as BJ ’ s, Cheesecake Factory and Buffalo Wild Wings. The average size of a Bad Daddy ’ s Burger Bar
prototype restaurant is approximately 3,500 square feet which is smaller than other grill and bar segment competitors. The
menu consists of chef driven recipes within a relatively simple menu of signature burgers, salads, sandwiches and
appetizers in a high energy, pop culture oriented atmosphere. The bar is dominated by craft beers and, while prominent
enough to impact the overall feel of the design, we do not believe it is so dominant as to be a turn off for families. We
believe the food quality is far superior to casual theme concepts, rivaling upscale casual concepts, with menu item names
that evoke an irreverent personality. Bad Daddy ’ s Burger Bar has been recognized for “ best burger ” and has received
many other accolades by the Charlotte, North Carolina press and community as well as by USA Today as being one of the
top 25 best burgers in the country.
Small box dining is the smallest, yet fastest growing portion of fast and full-service casual dining, reflecting years of
evolution and innovation. We believe that Bad Daddy ’ s Burger Bar combines a reasonable average check, high
personality and convenient experience, innovative recipes and above average quality yielding a strong value
proposition. Fast casual has exhibited the majority of the growth in the restaurant industry over the last decade and
represents the largest segment within small box dining at nearly $23 billion in sales led by concepts such as Panera Bread,
Chipotle, Noodles, Pei Wei, Five Guys and Corner Bakery.
We believe that Bad Daddy ’ s Burger Bar is differentiated from other casual grill and bar concepts, with a focused, yet
sufficiently diverse menu featuring a selection of unique, chef-developed, “ gourmet ” menu items in an atmosphere with a
purposefully unsophisticated feel. With a per person average check that is higher than casual theme concepts such as Chili
’ s and Red Robin, Bad Daddy ’ s Burger Bar is similar to Burger Lounge, The Counter and Bobby ’ s Burger Palace, but
below Zinburger, Five Napkin Burger and other higher check concepts, based on our knowledge of existing Bad Daddy ’ s
Burger Bar restaurants ’ sales mix. Bad Daddy ’ s Burger Bar offers a full bar, but most of its alcohol sales are derived
from craft microbrew beers. Sales are divided equally between lunch and dinner with hours of operation from 11 am to 11
pm with restaurants open slightly later on weekends depending on the surrounding trade area.
Based on management ’ s review of the average sales of the three operating restaurants that have been open for more than
one year, we anticipate that Bad Daddy ’ s restaurants will generate much higher sales per square foot than the average for
quick service restaurants and higher than the publicly reported sales per square foot of concepts such as Panera Bread, Five
Guys Burgers & Fries and BJ ’ s Restaurants. We estimate that it will require a cash investment of $700,000 to $900,000 to
open each restaurant in the State of Colorado and anticipate a return on investment model that is very competitive in the
industry, based on our knowledge of existing Bad Daddy ’ s Burger Bar restaurants, the BDFD Franchise Disclosure
Document and other publicly available information of similarly sized restaurant concepts. The existing Bad Daddy ’ s
Burger Bar average sales per restaurant are much higher than the Good Times Burgers & Frozen Custard average sales per
restaurant as is their average check. We believe there are additional purchasing and operating efficiencies that we can
jointly develop between Good Times Burgers & Frozen Custard and Bad Daddy ’ s Burger Bar that will provide a
competitive cash on cash return on investment at sales volumes lower than the current average sales of existing Bad Daddy
’ s Burger Bar restaurants.
BDFD has prepared a Franchise Disclosure Document, operating systems and processes and registered trademarks and is
ready for expansion through the sale of franchises.
4
Business Strategy
We are focused on continuing to improve the profitability of Drive Thru and developing additional Good Times Burgers &
Frozen Custard restaurants in our home state of Colorado while aggressively developing the Bad Daddy ’ s Burger Bar
concept with company-owned restaurants in Colorado, Arizona and Kansas and with franchised restaurants across the U.S.
allowing us to leverage these strengths and opportunities:
•
•
•
•
•
•
Good Times is a 26 year old company with a vibrant, high quality brand position in Colorado.
We have no bank debt, a healthy balance sheet with positive cash flow from operations and 12 consecutive
quarters of same store sales growth.
We have an existing infrastructure with sophisticated systems and processes in place that can be significantly
leveraged with a new growth concept.
We have the exclusive right to develop Bad Daddy ’ s Burger Bar restaurants in Colorado, as well as optional
development rights in Arizona and Kansas.
We have a 48% ownership interest in BDFD, the franchisor of the Bad Daddy ’ s Burger Bar concept, which we
will manage under a Management Services Agreement, franchising primarily to experienced, multi-unit operators
of other restaurant concepts.
We are partnering with successful serial restaurateurs in Bad Daddy ’ s Burger Bar, which we believe is an
exciting new, emerging growth concept.
Our strategies for growing the Company include the following:
1.
Consistently Grow Comparable Restaurant Sales. We will continue to focus on comparable restaurant sales driven by
increases in customer counts and increases in the average customer check. Same store sales increased 3.1% in fiscal 2012
compared to fiscal 2011 and increased 11.9% in fiscal 2013 compared to the same prior year period. We hope to increase
customer counts throughout fiscal 2014 through a multi-faceted approach to continually improve the Good Times Burgers
& Frozen Custard brand experience for our customers through:
•
•
•
•
•
•
•
The new breakfast menu introduced in November 2012 that is currently generating sales of over 9% of total sales,
consisting of Hatch Valley Green Chile Burritos, coffee and orange juice.
The new line of all natural, hand breaded chicken tenderloin products that was introduced in March 2013, making
Good Times Burgers & Frozen Custard the only QSR chain 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 predominantly store level communications to include the
reintroduction of television advertising 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 Burgers & Frozen
Custard.
Accelerating our reinvestment in our existing facilities with reimaging and remodeling.
Developing new Good Times Burgers & Frozen Custard restaurants within the Denver marketing area to leverage
existing operational and marketing efficiencies.
2.
Reduce the Cost of Sales at our Good Times Burgers & Frozen Custard Restaurants. In fiscal 2012 our food and
packaging costs decreased by 1.7% of restaurant sales from fiscal 2011 and in fiscal 2013 they were .2% lower than the
same prior year period. 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 and in fiscal 2013 increased
approximately 1.3% compared to fiscal 2012. We implemented a cumulative total menu price increase of 2.8% in fiscal
2012 and 2.2% in fiscal 2013. We anticipate minor menu reengineering within our current menu categories, the growth of
the new breakfast menu category sales and we have recently entered into a new distribution agreement with Food Service
of America on more advantageous terms generally only available to much larger restaurant companies. We believe that the
effect of these more advantageous terms will slightly reduce our overall cost of sales as a percentage of total sales in the
fiscal year ended September 30, 2014 ( “ fiscal 2014 ” ).
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 Good Times Burgers & Frozen Custard restaurants. Historically, depending on the
sales
5
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 continue to improve our income from operations as a
percentage of total revenues.
Leverage our Scale and Existing Infrastructure. We have sophisticated systems and processes in place that can
4.
support a larger organization than we currently operate in accounting, information technology, real estate and development,
marketing, purchasing, human resources and training, legal and the costs associated with maintaining a publicly listed
company. Our agreements with BDI and BDFD afford us the opportunity to increase both our company-owned restaurant
base and develop a large network of franchised restaurants while realizing overhead efficiencies off of our existing
infrastructure. We anticipate adding additional key management personnel in functional areas such as real estate,
construction and finance to support accelerated growth.
Aggressively Expand Bad Daddy ’ s Burger Bar. We intend to develop several company-owned Bad Daddy ’ s Burger
5.
Bar restaurants during fiscal 2014 and 2015 while laying the foundation for accelerated franchise growth through
BDFD. Our ultimate objective is to be in a position to roll-up the operations of BDI, BD of Colo and BDFD through the
purchase of BDI ’ s interests that we anticipate would be financed through additional sales of our common stock, creating a
larger base of ownership of company-owned and franchised restaurants. However, there can be no assurance that we can
effect such a transaction or that the development of BD OF COLO or BDFD will be successful. While we have certain first
rights to purchase BDI ’ s restaurants and BDI ’ s interest in BDFD, we have no absolute rights to do so without BDI ’ s
decision to sell its BDFD interest.
Expansion strategy and site selection
Good Times Burgers & Frozen Custard
We believe that our highest return opportunity in our Good Times Burgers & Frozen Custard unit is to focus our growth in
Colorado for operating and marketing efficiencies off of our existing base of restaurants while building new restaurants
within the Denver marketing area.
Any development of new Good Times Burgers & Frozen Custard restaurants will 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.
Bad Daddy ’ s Burger Bar
Our development of the Bad Daddy ’ s Burger Bar concept in company-owned restaurants will focus on urban and
suburban upper income demographic areas with median household incomes over $60,000, initially along the front range of
Colorado, with a high concentration of daytime employment, upscale retail, movie theaters and hospitals. BDFD will focus
on the sale of multi-unit development agreements to experienced, well-capitalized multi-unit restaurant operators that have
other non-competing concepts. We believe the Bad Daddy ’ s Burger Bar concept has national expansion potential in
vibrant, growing, upper scale demographic markets.
Bad Daddy ’ s Burger Bar locations are in-line and end-cap locations in new and existing shopping center developments
using approximately 3,200 square feet. While our Good Times Burgers & Frozen Custard restaurants are free standing and
require extensive site development and entitlement processes, Bad Daddy ’ s Burger Bar restaurants can be developed
much more quickly due to the requirement for only a building permit, signage approvals and liquor license without the need
for extensive on- and off-site development or land and zoning submittals and modifications. We estimate that it will take
approximately 75 to 90 days to develop a Bad Daddy ’ s Burger Bar from the time a building permit is issued.
Restaurant locations : We currently operate or franchise a total of thirty-eight Good Times restaurants, of which thirty-
five are in Colorado. 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
25
10
3
38
2012
17
7
15
39
6
Denver, CO
Greater Metro Wyoming
North
Dakota
2
2
1
1
25
10
35
2013
18
7
13
38
In January 2013 we purchased a restaurant in Thornton, Colorado from the franchisee, and in May 2013 we purchased a
restaurant in Castle Rock, Colorado from the franchisee. In September 2013 we closed one under-performing restaurant in
Silverthorne, Colorado whose lease expired September 30, 2013. We anticipate that franchisees may close one low volume
franchised restaurant in fiscal 2014.
We expect to open our first Bad Daddy ’ s restaurant in Colorado in January 2014 and have one additional site under lease
with several more in various stages of negotiation for development in fiscal 2014 and 2015.
Menu
Good Times Burgers & Frozen Custard
The menu of a Good Times Burgers & Frozen Custard restaurant is limited to hamburgers, cheeseburgers, chicken
sandwiches, french fries, onion rings, fresh squeezed and frozen lemonades, soft drinks and frozen custard products. Each
menu item is made to order at the time the customer places the order and is not pre-prepared.
In November 2012 we introduced a breakfast menu consisting of Hatch Valley Green Chile Breakfast Burritos, orange
juice and coffee. 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 100% All Natural tenderloins that are
hand breaded in each restaurant daily. Signature chicken products include the “ Hand Breaded Tenders, ” “ Buffalo
Chicken Tender, ” “ Guacamole Bacon Chicken Tender, ” and a “ Tuscan Chicken ” . Equipment has been automated and
equipped with compensating computers to deliver a consistent product and minimize variability in operating systems.
All natural Angus beef and 100% all natural chicken are raised without the use of any hormones, antibiotics or animal
byproducts that are normally used in the open market. We believe that all natural beef and chicken deliver a better tasting
product and, because of the rigorous protocols and testing that are a part of the Meyer All Natural Beef and Spring
Mountain Farms Chicken 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 0.4% 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. We serve 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.
Bad Daddy ’ s Burger Bar
The menu of Bad Daddy ’ s Burger Bar consists of high quality, handcrafted burgers made from a proprietary blend of
chuck and brisket with artisanal cheeses, tuna, turkey and chicken sandwiches, chopped salads, appetizers, hand cut fries,
house made potato chips, hand spun milk shakes, desserts, craft microbrews and a full bar. Customers have their choice of
7 different patty options, over 24 fresh toppings, 10 cheeses and other exotic flavors.
7
Burger toppings include items such as homemade mozzarella, hand breaded applewood smoked bacon, pesto and recipes
such as the “ Bad Ass Burger, ” “ Mama Ricotta ’ s Burger ” and “ Emilio ’ s Chicken Sandwich. ” Chopped Salads
include the “ Texican Chicken Salad, ” the “ Tree Hugger Salad ” and create your own options.
Bad Daddy ’ s Burger Bar strives to provide proprietary flavors and recipes available nowhere else with fresh, handcrafted
quality throughout the menu. Breakfast is served on the weekends only, however we are evaluating whether breakfast will
be a part of any new Bad Daddy ’ s restaurant development.
Marketing & Advertising
Good Times Burgers & Frozen Custard
Our marketing strategy for Good Times Burgers & Frozen Custard 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 our 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. During fiscal
2013 we reintroduced a new television ad campaign, most of which was on cable channels, 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.
We plan to continue to be active in digital media in order to create more customer engagement with our brand. We
anticipate leveraging our customer email database and website to create cost effective channels to target existing customers
and increase their frequency.
Bad Daddy ’ s Burger Bar
Our marketing strategy for Bad Daddy ’ s Burger Bar focuses on iconic, in-store merchandising materials and local store
marketing to the surrounding trade area around each restaurant, including public relations and community based
events. The focus is not on market wide promotions or marketing but on the in-store customer experience, building word
of mouth reputation and recommendations and local public relations based on the prior awards and recognitions received by
Bad Daddy ’ s in its current market of Charlotte, North Carolina.
Operations
BDI has extensive operating, training and quality control systems in place and we plan to take a “ best practices ” approach
with management of BDFD to adapt our systems and processes where practicable for the Bad Daddy ’ s Burger Bar
concept, except where noted below.
Restaurant Management
Each Good Times Burgers & Frozen Custard restaurant employs 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.
Bad Daddy ’ s Burger Bar was developed as a chef driven concept and uses a Head Chef or Kitchen Manager, Sous Chef,
General Manager and Assistant Managers in its operations. As a full service concept, the experience, qualifications and
compensation differs from Good Times Burgers & Frozen Custard and we plan to recruit and train a separate operating
team for the Company ’ s Bad Daddy ’ s Burger Bar operations. In April 2013, we hired Scott Somes and Mike Maloney to
lead the operations of BDFD and BD OF COLO, both of whom have extensive experience in managing and developing full
service restaurants.
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
8
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 and anticipate that we will roll out the new system in fiscal 2014. The order system at each
Good Times Burgers & Frozen Custard restaurant is equipped with an internal timing device that displays and records the
time each order takes to prepare and deliver. Historically, 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 our Good Times Burgers & Frozen Custard restaurants
’ 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
for every
restaurant. Additionally we have a library of video training tools to drive training efficiencies and consistency.
service, employee development,
financial management and
store maintenance goals
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
For Good Times Burgers & Frozen Custard, we have prepared form area rights and franchise agreements, a Franchise
Disclosure Document ( “ FDD ” ) and advertising material to be utilized in soliciting prospective franchisees. We have
historically sought 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 anticipate building additional company-owned Good Times
Burgers & Frozen Custard restaurants.
We estimate that it will cost a Good Times Burgers & Frozen Custard franchisee on average approximately $750,000 to
$1,100,000 to open a restaurant with dining room seating, including pre-opening costs and working capital, assuming the
land is leased. A franchisee typically will pay a royalty of 4% of net sales, an advertising materials fee of at least 1.5% of
net sales, plus participation in regional advertising up to an additional 4% of net sales, or a higher amount approved by the
advertising cooperative, and initial development and franchise fees totaling $25,000 per restaurant. Among the services
and materials which we provide to franchisees are site selection assistance, plans and specifications for construction of the
Good Times Burgers & 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 Good Times Burgers & Frozen Custard franchise agreement is signed, we actively work with and monitor our
franchisees to ensure successful franchise operations as well as compliance with our 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.
9
We have entered into 10 Good Times & Frozen Custard franchise agreements in the greater Denver metropolitan area. In
addition, 7 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.
For Bad Daddy ’ s Burger Bar, our focus on franchising will be through our ownership in, and management of,
BDFD. BDFD has a current FDD, form area rights and franchise agreements and one existing franchisee signed. We
intend to expand the marketing of Bad Daddy ’ s Burger Bar franchises throughout the U.S. We anticipate that a franchisee
will typically pay a royalty of 5% of net sales and will participate in an Advertising Fund and local advertising by
contributing up to 4% of [net] sales. Initial development and franchise fees are projected to be $35,000 per restaurant. We
estimate that it will cost a Bad Daddy ’ s Burger Bar franchisee $590,000 to $1,382,000 to open a 3,000 to 3,800 square
foot restaurant in an in-line or end-cap retail center, based on the BDFD Franchise Disclosure Document and our
knowledge of the development costs of the existing Bad Daddy ’ s Burger Bar restaurants. BDFD will provide similar
support services to its franchisees and licensees that we provide to Good Times Burgers & Frozen Custard
franchises. BDFD has entered into five license agreements for restaurants in North Carolina operated by BDI and one
franchise agreement.
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. The major management information systems are divided by function:
•
•
•
•
•
Restaurant point of sale;
Restaurant back-of-house;
Financial;
Payroll/human resources; and
Internal operational reports.
We believe that these reporting systems are sophisticated and enhance our ability to control and manage operations. We are
currently testing new point of sale equipment for our restaurants. We anticipate implementing similar management
information systems in our operation of Bad Daddy ’ s Burger Bar restaurants.
Food Preparation, Quality Control & Purchasing
We believe that we have excellent food quality standards relative to the QSR 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 the food and paper supplies for our Good Times Burgers & Frozen Custard restaurants
from Food Services of America (formerly Yancey ’ s Food Service). In addition, we maintain multiple approved suppliers
for all key components of our menu to mitigate risk and ensure supply. Suppliers are chosen based upon their ability to
provide (i) a continuous supply of product that meets all safety and quality specifications, (ii) logistics expertise and freight
management, (iii) product innovation and differentiation, (iv) customer service, (v) transparency of business relationships
and (vi) competitive pricing. Specified products are distributed to all restaurants through Food Services of America under a
negotiated contract directly to our restaurants two to four times per week depending on restaurant requirements. We do not
believe that the current reliance on this sole distributor 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 with little or no
interruption in service. 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 September 30, 2013, we had approximately 435 employees of which 367 are hourly employees and 68 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 Burgers & Frozen Custard
competes with a large number of other hamburger-oriented fast food restaurants in the areas in which it operates. Many of
10
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 Burgers & Frozen
Custard 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 the average check at a Good Times
Burgers & Frozen Custard restaurant.
We believe that Good Times Burgers & Frozen Custard may have a competitive advantage in terms of quality of product
compared to traditional fast food hamburger chains. Early development of our double drive-through concept in Colorado
has given us an advantage over other double drive-through chains that may seek to expand into Colorado because of our
brand awareness and present restaurant locations. Nevertheless, we may be at a competitive disadvantage to other
restaurant chains with greater name recognition and marketing capability. Furthermore, most of our competitors in the fast-
food business operate more restaurants, have been established longer, and have greater financial resources and name
recognition than we do. There is also active competition for management personnel, as well as for attractive commercial
real estate sites suitable for restaurants.
Bad Daddy ’ s Burger Bar competes with both local and national grill and bar concepts and gourmet, “ better burger ”
concepts. As the concept is expanded, Bad Daddy ’ s Burger Bar will compete against concepts such as Red Robin, Chili ’
s, Burger Lounge, The Counter, and Bobby ’ s Burger Palace. There are other burger-centric fast casual concepts such as
Five Guys Burgers & Fries and Smashburger that operate at a lower average customer check than Bad Daddy ’ s Burger
Bar and others such as Zinburger, Bare Burger and Five Napkin Burger that operate with a higher average customer
check. We believe that Bad Daddy ’ s Burger Bar has an advantage in the handcrafted quality of its food, distinctiveness of
its atmosphere and uniqueness of its menu offerings. Nevertheless, Bad Daddy ’ s Burger Bar may be at a competitive
disadvantage to other restaurant chains with greater name recognition.
Intellectual Property
We have registered our 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. We received
approval of our 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 2014 and 2018.
BDI has registered the mark “ Bad Daddy ’ s Burger Bar ” with the United States Patent and Trademark Office. BDI owns
this mark and licenses it to BDFD. The license agreement does not significantly limit BDFD ’ s right and ability to use or
license the use of the mark.
The trademarks and the proprietary aspects of the Bad Daddy ’ s Burger Bar operating system, such as for example
operating manuals, unique design elements and the unique equipment of the restaurants and the unique recipes, are owned
by BDI. BDI has licensed the trademarks and such intellectual property aspects to BDFD for its use in sublicensing and
franchising the Bad Daddy ’ s Burger Bar restaurants. The license fee is $1,000 per year and the term of the license is the
longer of 30 years or the term of any Bad Daddy ’ s Burger Bar franchise agreement. BDFD is obligated to use such
intellectual property in accordance with reasonable directions from BDI and the license can be terminated following any
breach of the foregoing by BDFD which is not cured within 60 days after written notice of such breach. Because of BDI ’ s
52% ownership of BDFD and its designation of a majority of the BDFD Managers, along with BDFD ’ s intention to use
the intellectual property in an improved manner, the Company views the possibility of such termination to be remote.
Government Regulation
Each of our restaurants 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 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
11
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. Many state franchise laws impose restrictions on the franchise agreements, 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 that state.
In addition, each Bad Daddy ’ s Burger Bar restaurant requires a liquor license and adherence to the attendant laws and
requirements regulating the serving and consumption of alcohol. Alcoholic beverage control regulations govern various
aspects of these restaurants ’ daily operations, including the minimum age of patrons and employees, hours of operation,
advertising, wholesale purchasing and inventory control, handling and storage. Typically, licenses to sell alcoholic
beverages will require annual renewal and may be suspended or revoked at any time for cause, the definition of which
varies by locality.
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 "Business," and
"Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements
are related to, among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
business objectives and strategic plans;
operating strategies;
our ability to open and operate additional restaurants profitably and the timing of such openings;
restaurant and franchise acquisitions;
anticipated price increases;
expected future revenues and earnings, comparable and non-comparable restaurant sales, results of operations,
and future restaurant growth (both company-owned and franchised);
estimated costs of opening and operating new restaurants, including general and administrative, marketing,
franchise development and restaurant operating costs;
anticipated selling, general and administrative expenses and restaurant operating costs, including commodity
prices, labor and energy costs;
future capital expenditures;
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 2014,
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;
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;
12
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 in our 26 years since inception except in four
fiscal years. As of September 30, 2013 we had an accumulated deficit of $19,264,000. We may have a loss for the current
fiscal year ending September 30, 2014 or we may not be profitable.
If we are unable to continue to increase same store sales at existing restaurants, our ability to attain profitability may be
adversely affected. We must increase same store sales at our existing restaurants to attain profitability, which we have done
for the past 13 consecutive quarters. 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. If our same store sales decrease, and our other operating costs increase, our ability to
attain profitability will be adversely affected.
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 customers.
Macroeconomic conditions could affect our operating results. The recent economic downturn, continuing disruptions in
the overall economy, including the ongoing impacts of the housing crisis, high unemployment and financial and market
volatility, and the related declines in business and consumer confidence, adversely affected customer traffic and sales
throughout the restaurant industry, including the QSR category. For example, our same store sales decreased in fiscal
2008, fiscal 2009 and the first ten months of fiscal 2010. If the economy experiences a further downturn or there are
continued uncertainties regarding economic recovery, consumer spending may be affected, which 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 customer 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, future price increases may deter customers 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 in the QSR segment include many recognized national and regional fast-food hamburger restaurant chains,
such
13
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 than we do. Discounting by our
QSR competitors may adversely affect the revenues and profitability of our restaurants.
While Bad Daddy ’ s Burger Bar operates in the “ better burger ” restaurant segment, it offers a relatively broad menu and
competes with other full service restaurants such as Chili ’ s, Red Robin and other local and regional full service
restaurants. Additionally, customers of both our Good Times Burgers & Frozen Custard restaurants and new Bad Daddy ’ s
Burger Bar restaurants are also customers of fast casual hamburger restaurants such as Five Guys Burgers & Fries and
Smashburger.
Sites for new restaurants may be difficult to acquire. Location of our restaurants in high-traffic and readily accessible
areas is an important factor for our success. Our Good Times Burgers & Frozen Custard drive-through restaurants require
sites with specific characteristics and there are a limited number of suitable sites available in our geographic markets. Bad
Daddy ’ s Burger Bar restaurants will be operated out of leased in-line retail locations as opposed to freestanding Good
Times Burgers & Frozen Custard locations. Since suitable locations are in great demand, in the future we may not be able
to obtain optimal sites for either of our restaurant concepts at a reasonable cost. In addition, we cannot assure you that the
sites we do obtain will be successful.
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. 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 currently maintain key-
person insurance on Messrs. Hoback ’ s or LeFever ’ s life. The loss of Messrs. Hoback ’ s or LeFever ’ s services, or other
key management personnel, could have a material adverse effect on our financial condition and results of operations.
Labor shortages could slow our growth or harm our business. Our success depends in part upon our ability to attract,
motivate and retain a sufficient number of qualified, high-energy employees. Qualified individuals needed to fill these
positions are in short supply in some areas. The inability to recruit and retain these individuals may delay the planned
openings of new restaurants or result in high employee turnover in existing restaurants, which could harm our
business. Additionally, competition for qualified employees could require us to pay higher wages to attract sufficient
employees, which could result in higher labor costs. Most of our employees are paid on an hourly basis. The employees
are paid in accordance with applicable minimum wage regulations. Accordingly, any increase in the minimum wage,
whether state or federal, could have a material adverse impact on our business.
We are subject to extensive government regulation that may adversely hinder or impact our ability to govern various
aspects of our business including our ability to expand and develop our restaurants. The restaurant industry is subject to
various federal, state and local government regulations, including those relating to the sale of food. While in the past we
have been able to obtain and maintain the necessary governmental licenses, permits and approvals, our failure to maintain
these licenses, permits and approvals, including food licenses, could adversely affect our operating results. Difficulties or
failures in obtaining the required licenses and approvals could delay or result in our decision to cancel the opening of new
restaurants. Local authorities may suspend or deny renewal of our food licenses if they determine that our conduct does not
meet applicable standards or if there are changes in regulations.
Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws
14
govern minimum wage requirements, 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.
Our Bad Daddy ’ s Burger Bar restaurants will also be subject to state and local laws that regulate the sale of alcoholic
beverages. Alcoholic beverage control regulations will govern various aspects of these restaurants ’ daily operations,
including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory
control, handling and storage. Typically, licenses to sell alcoholic beverages will require annual renewal and may be
suspended or revoked at any time for cause, the definition of which varies by locality. The failure of any of our Bad Daddy
’ s Burger Bar restaurants to timely obtain and maintain any required licenses, permits or approvals to serve alcoholic
beverages could delay or prevent the opening of a new restaurant or prevent regular day-to-day operations, including the
sale of alcoholic beverages, at a restaurant that is already operating, any of which would adversely affect our business.
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 customer traffic to our restaurants. If we react to the negative publicity by changing our concept or our menu
we may lose customers who do not prefer the new concept or menu, and we may not be able to attract a sufficient new
customer base to produce the revenue needed to make our restaurants profitable. In addition, we may have different or
additional competitors for our intended customers as a result of a concept change and may not be able to compete
successfully against those competitors. A decrease in customer 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.
Risks Related to Bad Daddy ’ s Relationship
Our ability to succeed with the Bad Daddy ’ s Burger Bar restaurant concept will require significant capital
expenditures and management attention. We believe that new openings of Bad Daddy ’ s Burger Bar restaurants are
likely to serve as the primary driver of our new unit growth and increased profitability over the longer term based on the
unit economics of that concept. Our ability to succeed with this new concept will require significant capital expenditures
and management attention and is subject to certain risks in addition to those of opening a new Good Times Burgers &
Frozen Custard restaurant, including customer acceptance of and competition with the Bad Daddy ’ s Burger Bar
concept. If the “ ramp-up ” period for new Bad Daddy ’ s Burger Bar restaurants does not meet our expectations, our
operating results may be adversely affected. There can be no assurance that we will be able to successfully develop and
grow the Bad Daddy ’ s Burger Bar concept to a point where it will become profitable or generate positive cash flow. We
may not be able to attract enough customers to meet targeted levels of performance at new Bad Daddy ’ s Burger Bar
restaurants because potential customers may be unfamiliar with the concept or the atmosphere or menu might not be
appealing to them. If we cannot successfully execute our growth strategies for Bad Daddy ’ s Burger Bar, our business and
results of operations may be adversely affected.
Our growth, including the development of Bad Daddy ’ s Burger Bar restaurants, may strain our management and
infrastructure. In addition to new openings of Bad Daddy ’ s Burger Bar restaurants, we also plan to remodel and reimage
existing Good Times Burgers & Frozen Custard restaurants. In addition, we believe there may be opportunities to open or
franchise new Good Times Burgers & Frozen Custard restaurants from time to time, although we believe that new openings
of Bad Daddy ’ s Burger Bar restaurants are likely to serve as the primary driver of new unit growth and increased
profitability over the longer term based on the unit economics of the concept. This growth will increase our operating
complexity and place increased demands on our management and infrastructure, including our current restaurant
management systems, financial and management controls, and information systems. If our infrastructure is insufficient to
support our growth, our ability to open new restaurants, including the development of the Bad Daddy ’ s Burger Bar
concept, would be adversely affected.
15
Bad Daddy ’ s Burger Bar is subject to all of the risks of a relatively new business, including competition, and there is
no guarantee of a return on our capital investment into BDFD or BD OF COLO. Bad Daddy ’ s Burger Bar is a
relatively new business concept. Existing Bad Daddy ’ s Burger Bar restaurants have been in existence for approximately
three years and are currently located in North Carolina and South Carolina. Because of the small number of existing Bad
Daddy ’ s Burger Bar restaurants and the relatively short period of time that they have been in operation, there is substantial
uncertainty that additional restaurants in other locations will be successful. There is no guarantee that BDFD will be
successful in offering Bad Daddy ’ s Burger Bar franchises throughout the U.S. or that, if and when such franchises are
granted, the restaurants developed by franchisees will be successful. There is also substantial uncertainty that the BDFD
franchising business will be successful in view of the facts that BDFD has sold only one Bad Daddy ’ s Burger Bar
restaurant franchise to date and that the restaurant franchising business is very competitive. If BDFD is unsuccessful in
attracting Bad Daddy ’ s Burger Bar franchisees and accordingly attaining broad-based consumer recognition of the Bad
Daddy ’ s Burger Bar restaurants, it could adversely affect the revenues of the Company ’ s Bad Daddy ’ s Burger Bar
restaurants.
Under the operating agreement of BDFD, there will be no distribution of any net cash profits during the first three years
unless approved by all the Class A members of BDFD. We have acquired a 48% voting ownership interest in BDFD in
exchange for an initial capital contribution of $750,000, of which we paid the first $375,000 installment on April 15, 2013
and we paid the second $375,000 installment in December 2013. The operating agreement of BDFD provides that the
Company and BDI may be required to make additional capital contributions to BDFD of up to an aggregate of $1,000,000
upon written request of BDFD ’ s Board of Managers. Such additional capital contributions, if required, will be in
accordance with the Company ’ s and BDI ’ s then respective percentage interests in BDFD. Accordingly, the Company ’ s
portion of such additional capital contributions, if required, prior to any change in BDFD ownership, will be up to
$480,000. If the additional capital contributions are required under the BDFD operating agreement, the Company intends
to pay its required portion out of working capital reserves. However, if the Company does not have sufficient working
capital reserves at the time the capital call is made, the Company may have to obtain funds from other sources and such
funds may not be available to the Company on favorable terms or at all.
Under the operating agreement of BDFD, there will be no distribution of any net cash profits during the first three years
unless approved by all the Class A members of BDFD. Thus, we may not receive any return on our initial capital
contribution to BDFD, or any subsequent additional capital contribution we may be required to make, during the first three
years of BDFD ’ s operations.
The Company does not have a majority voting interest in BDFD and the Company ’ s Management Services Agreement
with BDFD has a limited term of three years. The Company has acquired a 48% voting membership interest in BDFD,
with the remaining 52% voting membership interest in BDFD currently held by BDI. The operating agreement of BDFD
provides that BDFD will be managed by its five-member Board of Managers, which currently consists of three members
designated by BDI and two members designated by the Company. Accordingly, the Company does not have a majority
voting interest in BDFD, nor does it control a majority of the Board of Managers. As a consequence, the Company will not
be able to control certain decisions regarding BDFD. Among other things, the annual budget of BDFD will be approved by
a majority of the Board of Managers, which majority may be achieved without the participation of the Company ’ s
designated managers.
The Company will provide management services to BDFD pursuant to the terms of a Management Services
Agreement. However, the term of the Management Services Agreement between the Company and BDFD is limited to
three years and may be terminated earlier in accordance with the terms of the agreement. Among other things, BDFD may
terminate the Management Services Agreement prior to the end of its three-year term based on the failure of BDFD to
achieve certain franchise sales goals. If BDFD terminates the Management Services Agreement prior to the end of its
three-year term, or if the Management Services Agreement is not renewed by the parties at the end of three years, the
Company will not have a right to manage BDFD or receive any management fee in connection therewith.
If the Company fails to comply with the development schedule under its license agreement with BDFD, it will lose its
exclusive development rights in Colorado and its additional development rights in Arizona and Kansas. The License
Agreement requires that BD of Colo develop at least two restaurants per year in Colorado over a five-year period, after
which BD of Colo may elect to develop additional Bad Daddy ’ s Burger Bar restaurants in Colorado in numbers
determined by it. In the event that the Company fails to comply with such development schedule, then (i) the Company ’ s
right to develop any additional Bad Daddy ’ s Burger Bar restaurants in Colorado under the License Agreement will
thereafter terminate automatically and (ii) BDFD may establish, operate or grant to other third parties the right to establish
or operate Bad Daddy ’ s Burger Bar restaurants in Colorado (subject to BD of Colo ’ s territory rights with respect to any
existing restaurant). Accordingly, if BD of Colo fails to meet its development schedule, it will lose its exclusive right to
develop Bad Daddy ’ s Burger Bar restaurants in Colorado.
In addition, pursuant to the operating agreement of BDFD, BD of Colo has a right to develop Bad Daddy ’ s Burger Bar
restaurants in Arizona and Kansas (to the extent that such territory is not then subject to development rights by or part of
the
16
protected territory right of any third party franchisee) subject to approval of BDFD ’ s Board of Managers, conditioned on
certain performance requirements with respect to its Colorado restaurants, and pursuant to a minimum development
schedule to be agreed upon with BDFD for Kansas and Arizona. If BD of Colo fails to meet such performance results with
respect to its Colorado restaurants or fails to meet its development schedule for Arizona or Kansas, it will not have any
right to develop additional Bad Daddy ’ s Burger Bar restaurants in Arizona and Kansas.
If the Company ’ s license agreement with BDFD is terminated, the Company will lose all rights to use the Bad Daddy ’
s Burger Bar name and intellectual property. The Company has entered into a license agreement with BDFD for an initial
term of 10 years, which is thereafter renewable by the Company for two additional 10-year terms. The license agreement
may be terminated by BDFD in the event of any uncured default by the Company thereunder. In the event of termination,
the license agreement provides that BDFD will have an option to purchase the Company ’ s Bad Daddy ’ s Burger Bar
restaurants for a price mutually agreed by the parties or their independently appraised value. Alternatively, if BDFD does
not exercise its purchase option, the Company must modify the restaurants to eliminate the use of the Bad Daddy ’ s Burger
Bar name and intellectual property. If any of such events were to occur, our results of operations would be adversely
affected.
BDI has a drag-along right regarding the Company ’ s interest in BDFD in the event that BDI proposes to sell its
interests in BDFD after the fifth anniversary of the Company ’ s investment in BDFD. The operating agreement contains
drag-along rights allowing BDI to require the Company to participate in a proposed sale of BDFD or all of its outstanding
ownership interests if approved by BDI and its designated managers at any time after April 15, 2018 (the fifth anniversary
of the Company ’ s investment in BDFD), subject to certain conditions. Thus, after five years, BDI could force the
Company to sell its membership interest in BDFD in a transaction which is not approved by the Company or its designated
managers of BDFD and which may not be in the Company ’ s best interest. That is, with regard to such a forced sale what
may be deemed by BDI for its own particular reasons and circumstances to be an advantageous time for it to sell its interest
in BDFD may be a disadvantageous time for the Company to sell under its particular circumstances.
Conflicts of interest may arise as a result of the Company ’ s status as a substantial owner of BDFD and its status as a
licensee of BDFD. The Company is both a 48% owner of BDFD and a licensee of BDFD. In its capacity as a substantial
owner and manager of BDFD, the Company will be obligated to require BDFD franchisees to comply with all of the terms
of their franchise agreements. This in turn may make it unfeasible as a practical matter for BD of Colo to obtain consents
from BDFD for variations of such terms that the Company believes are appropriate for the particular circumstances of the
BD of Colo restaurants. For example, the Company may wish to be able to add a non-standard menu item to its Bad Daddy
’ s Burger Bar restaurants which will be uniquely popular in a particular geographic location which under such
circumstances BDFD would normally allow but which it would not wish to allow for other licensees. In that event, BDFD
may nonetheless not permit such a variation by the Company because of a possible claim that it is preferentially treating a
BDFD insider.
Risks Related to the Ownership of Our Securities
Our principal stockholder has significant voting power and may take actions that may not be in the best interests of our
other stockholders. SII beneficially owns approximately 32.9% of our outstanding common stock. In addition, by virtue
of its ownership of Series C Convertible Preferred Stock, SII will continue to have certain rights and preferences over the
holders of our common stock. The Class C Convertible Preferred Stock also votes together with the common stock, on an
as-if-converted basis, on the election of directors and all other matters that come before the stockholders of the
Company. As a result, SII will continue to have significant influence regarding the strategic direction and/or capital
structure of the Company. This concentration of ownership and voting power may have the effect of delaying or
preventing a change in control and might adversely affect the market price of our common stock, and therefore may not be
in the best interests of our other stockholders.
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.
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
17
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.
Because we currently qualify as a “ smaller reporting company, ” our non-financial and financial information are less
than is required by non-smaller reporting companies.
Currently we qualify as a “ smaller reporting company. ” The “ smaller reporting company ” category includes companies
that (1) have a common equity public float of less than $75 million or (2) are unable to calculate their public float and have
annual revenue of $50 million or less, upon entering the system. A smaller reporting company prepares and files SEC
reports and registration statements using the same forms as other SEC reporting companies, though the information
required to be disclosed may differ and be less comprehensive. Regulation S-X contains the SEC requirements for
financial statements, while Regulation S-K contains the non-financial disclosure requirements.
To locate the scaled disclosure requirements, smaller reporting companies will refer to the special paragraphs labeled “
smaller reporting companies ” in Regulation S-K. As an example only, smaller reporting companies are not required to
make risk factor disclosure in Item 1A of Form 10-K. Other disclosure required by non-smaller reporting companies can
be omitted in Form 10-K and Form 10-Q by smaller reporting companies.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
We currently lease approximately 3,700 square feet of space for our executive offices in Golden, Colorado for
approximately $63,000 per year under a lease agreement which expires in December 2013 and is month to month
thereafter. The space is leased from The Bailey Company, a significant stockholder in the Company, at their corporate
headquarters.
As of December 9, 2013, Good Times has an ownership interest in twenty-five Good Times units, all of which are located
in Colorado. Seven of these restaurants are held in a joint venture limited partnership of which Good Times is the general
partner. Good Times has a 50% interest in six of the partnership restaurants and a 78% interest in one restaurant. There are
eighteen Good Times units that are wholly owned by Good Times.
Most of our existing Good Times restaurants are a combination of free-standing structures containing approximately 880 to
1,000 square feet for the double drive thru format and approximately 2,400 square feet for our prototype building with a 70
seat dining room. In addition, we have several restaurants that are conversions from other concepts in various sizes ranging
from 1,700 square feet to 3,500 square feet. The buildings are situated on lots of approximately 18,000 to 50,000 square
feet. Certain restaurants serve as collateral for the underlying debt financing arrangements as discussed in the Notes to
Consolidated Financial Statements included in this report. We intend to acquire new sites both through ground leases and
purchase agreements supported by mortgage and leasehold financing arrangements and through sale-leaseback agreements.
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.
18
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.
MINE SAFETY DISCLOSURES
ITEM 4.
Not applicable.
19
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
2012
2013
December 31, 2011
March 31, 2012
June 30, 2012
September 30, 2012
$ 1.76
$ 1.46
$ 5.98
$ 2.29
$ 1.06
$
.71
.90
$
$ 1.15
December 31, 2012
March 31, 2013
June 30, 2013
September 30, 2013
$ 3.38
$ 3.48
$ 3.60
$ 3.41
$ 1.20
$ 2.26
$ 2.78
$ 2.00
As of December 9, 2013 there were approximately 900 holders of record of our Common Stock. However, management
estimates that there are not fewer than 1,050 beneficial owners of our Common Stock.
As of December 9, 2013 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 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 Registered Securities : On August 21, 2013 we completed a public offering of 2,200,000 shares of
common stock, together with warrants to purchase 2,200,000 shares of our common stock ( “ A Warrants ” ) and additional
warrants to purchase 1,100,000 shares of our common stock ( “ B Warrants ” ) with a per unit purchase price of $2.50. One
share of common stock was sold together with one A Warrant, with each A Warrant being exercisable on or before August
16, 2018 for one share of common stock at an exercise price of $2.75 per share, and together with one B Warrant, with two
B Warrants being exercisable on or before May 16, 2014 for one share of common stock at an exercise price of $2.50 per
share. Net proceeds from the transaction were approximately $4,659,000. We intend to use the net proceeds from this
offering for our remaining required equity contribution to BDFD; for the remodeling and reimaging of existing Good Times
Burgers & Frozen Custard restaurants; for the development of new Bad Daddy ’ s Burger Bar restaurants through BD of
Colo; and as working capital reserves and future investment at the discretion of our Board of Directors.
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
20
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 8, 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, 2013.
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))
324,853
324,853
$4.35
$4.35
175,146
175,146
Plan category
Equity compensation plans
approved by security holders-
options
Total
21
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 subsidiaries for the fiscal years ended September 30, 2009 to 2013. 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)
Affiliate investment income (loss)
Interest income (expense), net
Total other income (expense)
Net Loss from continuing operations
Loss from discontinued operations
Net Loss
Income attributable to non-controlling interest
Net Loss attributable to Good Times Restaurants Inc.
Preferred stock dividends
Net Loss attributable to common shareholders
Basic and Diluted Loss Per Share
Balance Sheet Data:
Working Capital (Deficit)
Total assets
Non-controlling interest in partnerships
Long-term debt
Stockholders' equity
2013
2012
September 30,
2011
2010
2009
$ 22,523,000
369,000
22,892,000
7,655,000
7,809,000
4,345,000
99,000
719,000
20,627,000
2,608,000
67,000
(18,000)
($392,000)
-
(6,000)
(102,000)
(44,000)
(152,000)
($544,000)
-
($544,000)
(143,000)
($687,000)
120,000
($807,000)
($.27)
$ 19,274,000 $ 20,183,000 $ 20,390,000 $ 22,079,000
536,000
22,615,000
420,000
20,603,000
473,000
20,863,000
432,000
19,706,000
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)
(109,000)
($777,000)
-
($777,000)
($.29)
7,241,000
7,043,000
4,172,000
-
888,000
19,344,000
2,038,000
70,000
(184,000)
($665,000)
27,000
22,000
-
(279,000)
(230,000)
($895,000)
-
($895,000)
(118,000)
($1,013,000)
-
($1,013,000)
($.42)
7,181,000
7,359,000
4,331,000
-
943,000
19,814,000
2,638,000
124,000
199,000
($1,912,000)
3,000
-
-
(598,000)
(1,185,000)
($2,507,000)
(590,000)
($3,097,000)
165,000
($2,932,000)
-
($2,932,000)
($2.26)
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)
(87,000)
-
-
(261,000)
(566,000)
($1,482,000)
(218,000)
($1,700,000)
54,000
($1,646,000)
-
($1,646,000)
($1.26)
$ 4,836,000
9,875,000
242,000
96,000
$ 7,321,000
$
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
22
ITEM 7.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net Revenues: Net revenues for fiscal 2013 increased $3,186,000 (+16.2%) to $22,892,000 from $19,706,000 for fiscal
2012. Same store restaurant sales increased $2,271,000 (+11.9%) during fiscal 2013. Restaurants are included in same
store sales after they have been open a full fifteen months. Restaurant sales increased $1,738,000 due to three restaurants
purchased from franchisees in fiscal 2012 and 2013. Restaurant sales decreased $59,000 due to two company-owned
restaurants not included in same store sales, one non-traditional location and one severely affected by road construction.
Restaurant sales decreased $701,000 due to two company-owned restaurants sold in fiscal 2012. Net revenues decreased
$63,000 in fiscal 2013 due to a decrease in franchise royalties and fees.
The positive same store sales results for fiscal 2013 reflect the continuation of the positive momentum we experienced in
fiscal 2011 and 2012 when same store sales increased 6.2% and 3.1%, respectively. In addition we introduced a limited
breakfast menu in November 2012 and total net revenues for breakfast were approximately $1,700,000 for fiscal 2013.
Our outlook for fiscal 2014 is cautiously optimistic based on the last three 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 decreased slightly in fiscal 2013 compared to fiscal 2012 with the addition of breakfast,
while our total customer traffic increased in excess of 12%. 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 2012 and 2013
were as follows:
Company-operated
Fiscal 2013
$903,000
Fiscal 2012
$807,000
Company operated restaurants ’ sales range from a low of $613,000 to a high of $1,734,000.
For factors which may affect future results of operations, please refer to a discussion of planned product and system
changes discussed in the section entitled “ Business Strategy ” in Item 1 on pages 5 - 6 of this report.
Restaurant Operating Costs: Drive Thru restaurant operating costs as a percent of restaurant sales were 91.1% for fiscal
2013 compared to 93.5% in fiscal 2012.
The changes in restaurant-level costs are explained as follows:
Drive Thru Restaurant-level costs for the period ended September 30, 2012
Decrease in food and packaging costs
Payroll and other employee benefit costs
Decrease in occupancy and other operating costs
Decrease in depreciation and amortization costs
Drive Thru Restaurant-level costs for the period ended September 30, 2013
93.5%
(.2%)
(.1%)
(1.2%)
(.9%)
91.1%
New store preopening costs of $99,000, included in total restaurant operating costs, were related to the first Bad Daddy ’ s
restaurant that is expected to open in January 2014.
Food and Packaging Costs: Food and packaging costs for fiscal 2013 increased $1,063,000 from $6,592,000 (34.2% of
restaurant sales) in fiscal 2012 to $7,655,000 (34% of restaurant sales).
In fiscal 2013 our weighted food and packaging costs increased approximately 1.3% compared to fiscal 2012. The total
menu price increases taken during fiscal 2013 were 2.2%. We anticipate cost pressure on several core commodities,
including beef, bacon and dairy for fiscal 2014. However, we anticipate our food and packaging costs as a percentage of
sales will decrease slightly in fiscal 2014 from a combination of price increases, product sales mix changes and recipe
modifications.
Payroll and Other Employee Benefit Costs: For fiscal 2013, payroll and other employee benefit costs increased
$1,118,000 from $6,691,000 (34.7% of restaurant sales) in fiscal 2012 to $7,809,000 (34.7% of restaurant sales).
The increase in payroll and other employee benefit expenses is primarily due to the increase in restaurant sales.
Additionally with the implementation of breakfast in November 2012 our payroll and employee benefit costs were
abnormally high during the first six months of fiscal 2013 due to training and over staffing to handle the additional sales.
Because payroll costs are semi-variable in nature they normally decrease as a percentage of restaurant sales when there is
an increase in restaurant
23
sales, however the lower average customer expenditure at breakfast somewhat mitigates this decrease. Payroll and
other employee benefits increased approximately $603,000 in fiscal 2013 due to three restaurants purchased from
franchisees in fiscal 2012 and 2013 and decreased approximately $293,000 in fiscal 2013 due to two company-owned
restaurants sold in 2012. We anticipate payroll and other employee benefit costs will decrease as a percentage of sales in
fiscal 2014 due to the operating leverage on increasing sales.
Occupancy and Other Operating Costs: For fiscal 2013, occupancy and other operating costs increased $406,000 from
$3,939,000 (20.4% of restaurant sales) in fiscal 2012 to $4,345,000 (19.3% of restaurant sales). The $406,000 increase in
occupancy and other costs is primarily attributable to:
A decrease of $214,000 in occupancy and other restaurant operating costs due to the two restaurants sold in fiscal 2012.
The decrease above was offset by the following increases:
•
•
•
•
Increase of $310,000 in occupancy and other restaurant operating costs due to the three restaurants purchased from
franchisees in fiscal 2012 and 2013.
Increases in various other restaurant operating costs of $125,000 at existing restaurants comprised primarily of
repairs and maintenance, property taxes, utility costs and bank fees.
Increase in rent expense of $107,000 due to two sale leaseback transactions completed in fiscal 2013.
An increase of $78,000 to our liability for the accretion of deferred rent in fiscal 2013.
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.
New Store Preopening Costs: In fiscal 2013 we incurred $99,000 of preopening costs related to the first new Bad Daddy ’
s restaurant which is expected to open in January 2014. Costs for this initial store opening will be higher than normal due to
payroll, travel and lodging costs incurred to train the management team in North Carolina at an existing Bad Daddy ’ s
franchisee.
Depreciation and Amortization Costs: For fiscal 2013, depreciation and amortization costs decreased $76,000 from
$795,000 in fiscal 2012 to $719,000. Depreciation costs primarily decreased due to the two restaurants sold in fiscal 2012
as well as due to declining depreciation expense in our aging company-owned and joint-venture restaurants.
General and Administrative Costs: For fiscal 2013, general and administrative costs increased $345,000 from $1,358,000
(6.9% of total revenues) in fiscal 2012 to $1,703,000 (7.4% of total revenues).
The $345,000 increase in general and administrative expenses in fiscal 2013 is primarily attributable to:
•
•
•
•
Increase in payroll and employee benefit costs of $132,000 due to the reinstatement of
certain management level salaries that were reduced in fiscal 2009 and 2010, as well as an
increase in health insurance costs.
Increase in professional services and financial relations costs of $50,000.
Increase in incentive stock option compensation expense of $101,000.
Net increases in various other expenses of $62,000.
Advertising Costs: For fiscal 2013, advertising costs increased $109,000 from $796,000 (4.1% of restaurant sales) in fiscal
2012 to $905,000 (4% of restaurant sales).
Contributions are made to the advertising materials fund and regional advertising cooperative based on a percentage of
sales. The contribution remained the same for fiscal 2013 compared to fiscal 2012.
We anticipate that fiscal 2014 advertising expense will remain consistent with fiscal 2013 and will consist primarily of
cable television advertising, social media and on-site and point-of-purchase merchandising totaling approximately 4% of
restaurant sales.
Franchise Costs: For fiscal 2013 franchise costs increased $7,000 from $60,000 (.3% of total revenues) in fiscal 2012 to
$67,000 (.3% of total revenues).
Gain on Restaurant Asset Sales: For fiscal 2013 the gain on restaurant asset sales decreased to $18,000 compared to
$51,000 in fiscal 2012. The gain on restaurant assets sales in fiscal 2013 is comprised of a $25,000 deferred gain on a
previous sale lease-back transaction, a $67,000 gain on a current sale lease-back transaction for one company-owned
restaurant, offset by a $74,000 loss to write off the assets of an under-performing restaurant that was closed in September
2013.
Loss from Operations: The loss from operations was $392,000 in fiscal 2013 compared to a loss from operations of
$474,000 in fiscal 2012. The decrease in loss from operations for the fiscal year is due primarily to matters discussed in the
"Restaurant
24
Operating Costs", "General and Administrative Costs", “ Franchise Costs ” and “ Gain on Restaurant Asset Sales ” sections
above.
Net Loss: The net loss was $544,000 for fiscal 2013 compared to $668,000 in fiscal 2012. The change from fiscal 2012 to
fiscal 2013 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 $155,000 compared to the same prior year period; and 2) an affiliate investment loss of $102,000 in
fiscal 2013.
Net interest expense decreased in fiscal 2013 compared to the same prior year period due to the payoff of the notes payable
to Wells Fargo Bank and PFGI II.
The net loss from affiliate investment activities consists of the Company ’ s share of net earnings or loss of its affiliates as
they occur. The loss from investment activities is related to our 48% ownership in BDFD which is a result of initial costs of
developing the Bad Daddy ’ s franchise program.
Income Attributable to Non-controlling Interests: For fiscal 2013 the income attributable to non-controlling interests
was $143,000 compared to $109,000 in fiscal 2012. The loss from non-controlling interest represents the limited partner ’ s
share of income in the co-developed restaurants.
Net Loss Attributable to Common Shareholders: For fiscal 2013 the net loss attributable to common shareholders
includes dividends of $120,000 related to the Series C Convertible Preferred Stock transaction completed with SII on
September 28, 2012.
Liquidity and Capital Resources
Cash and Working Capital:
As of September 30, 2013, we had a working capital excess of $4,836,000. 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 2014 and beyond.
Financing:
Public Offering : On August 21, 2013 we completed a public offering of 2,200,000 shares of common stock, together with
warrants to purchase 2,200,000 shares of our common stock ( “ A Warrants ” ) and additional warrants to purchase
1,100,000 shares of our common stock ( “ B Warrants ” ) with a per unit purchase price of $2.50. One share of common
stock was sold together with one A Warrant, with each A Warrant being exercisable on or before August 16, 2018 for one
share of common stock at an exercise price of $2.75 per share, and together with one B Warrant, with two B Warrants
being exercisable on or before May 16, 2014 for one share of common stock at an exercise price of $2.50 per share.
We intend to use the $4,659,000 net proceeds from this offering for our remaining required equity contribution to BDFD;
for the remodeling and reimaging of existing Good Times Burgers & Frozen Custard restaurants; for the development of
new Bad Daddy ’ s Burger Bar restaurants through BD of Colo; and as working capital reserves and future investment at
the discretion of our Board of Directors.
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 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
in October, 2012.
PFGI II LLC Promissory Note : The balance of our loan from PFGI II LLC 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 $1,377,000
and we used $765,000 to pay down the PFGI II Note. The remaining balance of $541,000 was paid on January 25, 2013
from the proceeds of another sale leaseback transaction.
SII Investment Transaction : On September 28, 2012, we closed on an 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. 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.
25
Cash Flows:
Net cash provided by operating activities was $703,000 for fiscal 2013 compared to net cash used in operating activities of
$22,000 in fiscal 2012. The increase in net cash provided by operating activities for fiscal 2013 was the result of a net loss
of $544,000 and non-cash reconciling items totaling $1,247,000 (comprised principally of 1) depreciation and amortization
of $719,000; 2) $171,000 of stock option compensation expense; 3) an $18,000 gain on asset sales; 4) an affiliate
investment loss of $102,000; 5) a $352,000 increase in other accounts payable and other accrued liabilities; and 6) net
increases in operating assets and liabilities totaling $79,000).
Net cash provided by investing activities in fiscal 2013 was $453,000 compared to $594,000 in fiscal 2012. The fiscal
2013 activity reflects payments for the purchase of property and equipment of $2,506,000, proceeds from sale lease-back
transactions of $3,329,000, a $375,000 investment in the BDFD affiliate and $5,000 of payments received on loans to
franchisees.
Net cash provided by financing activities in fiscal 2013 was $4,371,000 compared to net cash used in financing activities of
$803,000 in fiscal 2012. The fiscal 2013 activity includes principal payments on notes payable and long term debt of
$1,593,000, proceeds from the public offering of $6,158,000, $90,000 in dividends paid on the preferred stock and
distributions to non-controlling interests in partnerships of $104,000.
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 sub-lessor 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, 2013 were $15,000.
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.
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
26
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, 2013. Assumptions used in preparing
expected cash flows were as follows:
•
•
•
•
•
Sales projections are as follows: Fiscal 2014 sales are projected to increase 6% with respect to fiscal 2013 and for
fiscal years 2015 to 2028 we have used annual increases of 2% to 3%. The 6% increase in fiscal 2014 is due to
current trends. We believe the 2% to 3% increase in the fiscal years beyond 2014 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 2013 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, 2013 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.
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 2010 through 2013. 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, 2013.
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 one franchisee with a note
payable to the Company and after analysis we have determined that, while this franchisee is a VIE, we are not the primary
beneficiary of the entity, and therefore it is not required to be consolidated.
27
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 new accounting pronouncements that affect the Company.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company has included the financial statements and supplementary financial information required by this item
immediately following Part IV of this report and hereby incorporates by reference the relevant portions of those statements
and information into this Item 8.
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, 2013, 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, 2013.
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, 2013, 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, 2013 that
have materially affected, or are reasonably likely to materially affect, the Company ’ s internal control over financial
reporting.
ITEM 9B.
OTHER INFORMATION
Nothing to report.
28
PART III
We will file a definitive Proxy Statement for our 2014 Annual Meeting of Stockholders with the SEC, pursuant to
Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part
III has been omitted under General Instruction G (3) to Form 10-K. Only those sections of our definitive Proxy Statement
that specifically address the items set forth herein are incorporated by reference.
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to
our 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days
following the end of our fiscal year.
Item 11.
Executive Compensation
The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to
our 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days
following the end of our fiscal year.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to
our 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days
following the end of our fiscal year.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to
our 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days
following the end of our fiscal year.
Item 14.
Principal Accountant Fees and Services
The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to
our 2014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days
following the end of our fiscal year.
29
ITEM 15.
The following exhibits are furnished as part of this report:
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit
Description
PART IV
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
4.1
4.2
4.3
4.4
10.1
10.2
10.3
Articles of Incorporation of Good Times Restaurants Inc. (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 Good Times Restaurants Inc. 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 of Good Times Restaurants Inc. dated June 15, 1994 (previously
filed as Exhibit 3.3 to the registrant ’ s Amendment No. 1 to Registration Statement on Form S-1 filed June 7,
2013 (File No. 333-188183) and incorporated herein by reference)
Amendment to Articles of Incorporation of Good Times Restaurants Inc. dated September 23, 1996
(previously filed as Exhibit 3.5 to the registrant ’ s Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996 (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 Change of Good Times Restaurants Inc. (previously filed as Exhibit 3.1 to the registrant ’ s
Current Report on Form 8-K filed January 12, 2011 (File No. 000-18590) and incorporated herein by
reference)
Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock of Good Times
Restaurants Inc. (previously filed as Exhibit 3.1 to the registrant ’ s Current Report on Form 8-K filed
September 20, 2012 (File No. 000-18590) and incorporated herein by reference)
Restated Bylaws of Good Times Restaurants Inc. 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)
Amendment to Restated Bylaws of Good Times Restaurants Inc. dated August 14, 2007 (previously filed as
Exhibit 3.1 to the registrant's Current Report on Form 8-K filed December 31, 2007 (File No. 000-18590) and
incorporated herein by reference)
Amendment to Restated Bylaws of Good Times Restaurants Inc. dated August 30, 2013 (previously filed on
August 30, 2013 as Exhibit 3.1 to the registrant ’ s Current Report on Form 8-K (File No. 000-18590) and
incorporated herein by reference)
Specimen Common Stock Certificate (previously filed as Exhibit 4.1 to the registrant ’ s Amendment No. 1 to
Registration Statement on Form S-1 filed June 7, 2013 (File No. 333-188183) and incorporated herein by
reference)
Specimen A Warrant Certificate (previously filed with Amendment No. 4 to the Form S-1 filed by the
Registrant on August 12, 2013) (File No. 333-188183) and incorporated herein by reference)
Form of Underwriter ’ s Warrant (previously filed as Exhibit 4.3 to the registrant ’ s Amendment No. 2 to
Registration Statement on Form S-1 filed June 26, 2013 (File No. 333-188183) and incorporated herein by
reference)
Specimen B Warrant Certificate (previously filed with Amendment No. 4 to the Form S-1 filed by the
Registrant on August 12, 2013) (File No. 333-188183) and incorporated herein by reference)
Good Times Restaurants Inc. 2008 Omnibus Equity Incentive Compensation Plan (previously filed as Exhibit
10.1 to the registrant ’ s Current Report on Form 8-K filed January 30, 2008 (File No. 000-18590) and
incorporated herein by reference)
Employment Agreement dated as of October 1, 2007 between Good Times Restaurants Inc. and Boyd E.
Hoback (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form 8-K filed January 30,
2008 (File No. 000-18590) and incorporated herein by reference)
Securities Purchase Agreement dated October 29, 2010 between Good Times Restaurants Inc. and Small
Island Investments Limited (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form 8-K
filed November 3, 2010 (File No. 000-18590) and incorporated herein by reference)
30
10.4 Registration Rights Agreement dated December 13, 2010 between Good Times Restaurants Inc. and Small
Island Investments Limited (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form 8-K
filed December 17, 2010 (File No. 000-18590) and incorporated herein by reference)
10.5 Consent and Waiver dated December 13, 2010 by the stockholders named therein to Good Times Restaurants
Inc. (previously filed as Exhibit 10.5 to the registrant ’ s Current Report on Form 8-K filed December 17, 2010
(File No. 000-18590) and incorporated herein by reference)
10.6 Financial Advisory Services Agreement dated April 6, 2012 between Good Times Restaurants Inc. and
Heathcote Capital LLC (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form 8-K filed
April 11, 2012 (File No. 000-18590) and incorporated herein by reference) and incorporated herein by
reference)
10.7 Securities Purchase Agreement dated June 13, 2012 between Good Times Restaurants Inc. and Small Island
Investments Limited (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form 8-K filed
June 19, 2012 (File No. 000-18590) and incorporated herein by reference)
10.8 Amendment to the Good Times Restaurants Inc. 2008 Omnibus Equity Incentive Compensation Plan dated
September 30, 2012 (previously filed as Exhibit 10.10 to the registrant ’ s Registration Statement on Form S-1
filed April 26, 2013 (File No. 333-188183) and incorporated herein by reference)
10.9 Supplemental Agreement dated September 28, 2012 between Good Times Restaurants Inc. and Small Island
Investments Limited (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form 8-K filed
October 1, 2012 (File No. 000-18590) and incorporated herein by reference)
10.10 Amendment to Supplemental Agreement dated October 16, 2012 between Good Times Restaurants Inc. and
Small Island Investments Limited (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form
8-K filed October 16, 2012 (File No. 000-18590) and incorporated herein by reference)
10.11 Letter Agreement dated December 5, 2012 between Good Times Restaurants Inc. and GT Burgers of Colorado,
Inc. (previously filed as Exhibit 10.13 to the registrant ’ s Registration Statement on Form S-1 filed April 26,
2013 (File No. 333-188183) and incorporated herein by reference)
10.12 Amendment to Financial Advisory Services Agreement dated March 25, 2013 between Good Times Restaurants
Inc. and Heathcote Capital LLC (previously filed as Exhibit 10.14 to the registrant ’ s Registration Statement on
Form S-1 filed April 26, 2013 (File No. 333-188183) and incorporated herein by reference)
10.13 Subscription Agreement dated April 9, 2013 between Good Times Restaurants Inc. and Bad Daddy ’ s
Franchise Development, LLC (previously filed as Exhibit 10.1 to the registrant ’ s Current Report on Form 8-K
filed April 15, 2013 (File No. 000-18590) and incorporated herein by reference)
10.14 Amended and Restated Operating Agreement of Bad Daddy ’ s Franchise Development, LLC dated April 9,
2013 (previously filed as Exhibit 10.2 to the registrant ’ s Current Report on Form 8-K filed April 15, 2013 (File
No. 000-18590) and incorporated herein by reference)
10.15 Management Services Agreement dated April 9, 2013 between Good Times Restaurants Inc. and Bad Daddy ’ s
Franchise Development, LLC (previously filed as Exhibit 10.3 to the registrant ’ s Current Report on Form 8-K
filed April 15, 2013 (File No. 000-18590) and incorporated herein by reference)
10.16 License Agreement dated April 9, 2013 between Bad Daddy ’ s Franchise Development, LLC and BD of
Colorado LLC (previously filed as Exhibit 10.4 to the registrant ’ s Current Report on Form 8-K filed April 15,
2013 (File No. 000-18590) and incorporated herein by reference)
10.17 Term Sheet for Joint Venture Agreement dated April 9, 2013 between Good Times Restaurants Inc. and Bad
Daddy ’ s International, LLC (previously filed as Exhibit 10.5 to the registrant ’ s Current Report on Form 8-K
filed April 15, 2013 (File No. 000-18590) and incorporated herein by reference)
10.18 Consent and Waiver of Small Island Investments Limited dated June 3, 2013 (previously filed as Exhibit 10.20
to Amendment No. 2 to Registration Statement on Form S-1 filed June 26, 2013 (File No. 333-188183) and
incorporated herein by reference)
31
10.19 Amendment to Financial Advisory Services Agreement dated September 27, 2013 between Good Times
Restaurants Inc. and Heathcote Capital LLC (previously filed as Exhibit 10.1 to the registrant ’ s Registration
Statement on Form 8-K filed October 1, 2013 (File No. 333-188183) and incorporated herein by reference)
10.20 *Amendment to Amended and Restated Operating Agreement of Bad Daddy ’ s Franchise Development, LLC
dated October 31, 2013
21.1 Subsidiaries of the Company (previously filed as Exhibit 21.1 to the registrant ’ s Registration Statement on Form
S-1 filed April 26, 2013 (File No. 333-188183) and incorporated herein by reference)
23.1 *Consent of HEIN & ASSOCIATES LLP
31.1 *Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2 *Certification of Controller pursuant to Rule 13a-14(a)/15d-14(a)
32.1 *Certification of Chief Executive Officer and Controller pursuant to 18 U.S.C. Section 1350
101 The following financial information from the Company ’ s Annual Report on Form 10-K for the year ended
September 30, 2013, filed with the SEC on December 27, 2013 formatted in Extensible Business Reporting
Language (XBRL): (i) the Consolidated Statements of Operations for the years ended September 30, 2013 and
2012, (ii) the Consolidated Balance Sheets at September 30, 2013 and 2012, (iii) the Consolidated Statement of
Stockholders ’ Equity at September 30, 2013, 2012 and 2011, (iv) the Consolidated Statements of Cash Flows for
the years ended September 30, 2013 and 2012, and (v) Notes to Consolidated Financial Statements.
*Filed herewith
32
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – September 30, 2013 and 2012
Consolidated Statements of Operations – For the Years Ended September 30, 2013 and 2012
Consolidated Statements of Stockholders ’ Equity – For the Period from October 1, 2011
through September 30, 2013
Consolidated Statements of Cash Flows – For the Years Ended September 30, 2013 and 2012
Notes to Consolidated Financial Statements
PAGE
F-2
F-3
F-4
F-5
F-6
F-7
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, 2013 and 2012, 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, 2013 and 2012, 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 27, 2013
F-2
Good Times Restaurants Inc. and Subsidiaries
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
Goodwill
Investment in affiliate
Deposits and other assets
September 30,
2013
2012
$
$
6,143,000
0
0
193,000
106,000
184,000
15,000
6,641,000
4,628,000
3,247,000
7,420,000
15,295,000
(12,444,000)
2,851,000
0
96,000
273,000
14,000
383,000
9,875,000
$
$
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
15,000
0
0
106,000
121,000
7,061,000
TOTAL ASSETS
CURRENT LIABILITIES:
LIABILITIES AND STOCKHOLDERS ’ EQUITY
Current maturities of long-term debt and capital lease obligations, net of
$
44,000
$
1,586,000
discount of $0 and $7,000, respectively
Accounts payable
Deferred income
Other accrued liabilities
Total current liabilities
LONG-TERM LIABILITIES:
Debt and capital lease obligations
Deferred and other liabilities
Total long-term liabilities
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS ’ EQUITY:
Good Times Restaurants Inc stockholders ’ equity:
Preferred stock, $.01 par value;
701,000
79,000
983,000
1,807,000
94,000
653,000
747,000
493,000
75,000
856,000
3,010,000
139,000
652,000
791,000
5,000,000 shares authorized, 355,451 issued
and outstanding as of September 30, 2013 and 2012 (liquidation preference
$1,500,000)
Common stock, $.001 par value; 50,000,000 shares
authorized, 4,926,214 and 2,726,214 shares issued and outstanding
as of September 30, 2013 and 2012, respectively
Capital contributed in excess of par value
Accumulated deficit
Total Good Times Restaurants Inc stockholders' equity
Non-controlling interest in partnerships
Total stockholders ’ equity
TOTAL LIABILITIES AND STOCKHOLDERS ’ EQUITY
$
4,000
1,000
5,000
26,334,000
(19,264,000)
7,079,000
242,000
7,321,000
9,875,000
3,000
21,510,000
(18,457,000)
3,057,000
203,000
3,260,000
7,061,000
$
See accompanying notes to condensed consolidated financial statements
F-3
Good Times Restaurants Inc. and Subsidiaries
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
Preopening 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)
Affiliate investment loss
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
Preferred stock dividends
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS
BASIC AND DILUTED LOSS PER
SHARE:
Net loss attributable to Good Times
Restaurants, Inc
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic and Diluted
FOR THE YEARS ENDED
SEPTEMBER 30,
2013
2012
$ 22,523,000 $ 19,274,000
18,000
414,000
19,706,000
13,000
356,000
22,892,000
7,655,000
7,809,000
3,333,000
1,012,000
99,000
719,000
20,627,000
1,703,000
905,000
67,000
(18,000)
(392,000)
3,000
(47,000)
(6,000)
(102,000)
0
(152,000)
($544,000)
6,592,000
6,691,000
2,999,000
940,000
0
795,000
18,017,000
1,358,000
796,000
60,000
(51,000)
(474,000)
4,000
(203,000)
(15,000)
0
20,000
(194,000)
($668,000)
(143,000)
(109,000)
($687,000)
(120,000)
($777,000)
0
($807,000)
($777,000)
($.27)
($.29)
2,967,310
2,726,214
See accompanying notes to condensed consolidated financial statements
F-4
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Stockholders ’ Equity
For the period from October 1, 2011 through September 30, 2013
Preferred Stock
Common Stock
Issued
Shares
Par
Value
Issued
Shares (1)
Par
Value (1 )
Capital
Contributed in
Excess of Par
Value
Non-
controlling
interest in
Partnerships
Accumulated
Deficit
Total
BALANCES, October 1, 2011
0
$
0
2,726,214
$ 3,000
$ 19,982,000 $ 215,000 $ (17,680,000) $ 2,520,000
Stock issued
Stock option compensation cost
Non-controlling interest in
Partnerships
Net Loss and comprehensive loss
355,451
1,000
1,459,000
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
Par value adjustment
Issuance of common shares and
warrants in public offering
Stock option compensation cost
Non-controlling interest in
Partnerships
Net Loss and comprehensive loss
Preferred dividends
3,000
2,200,000
2,000
(4,000)
4,657,000
171,000
(1,000)
4,659,000
171,000
39,000
(687,000)
(120,000)
39,000
(687,000)
(120,000)
BALANCES, September 30, 2013
355,451
$ 4,000
4,926,214
$ 5,000
$ 26,334,000 $ 242,000 $ (19,264,000) $ 7,321,000
F-5
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
Amortization of debt issuance costs
Accretion of deferred rent
Affiliate investment loss
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 provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment
Proceeds from sale leaseback transactions
Proceeds from the sale of fixed assets
Investment in affiliate
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 longterm debt
Proceeds (costs) from stock sales
Preferred dividend paid
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
Preferred dividends declared
F-6
FOR THE YEARS ENDED
September 30,
2013
2012
$
(544,000)
$
(668,000)
719,000
6,000
40,000
102,000
(18,000)
171,000
0
(48,000)
(25,000)
(53,000)
1,000
208,000
144,000
703,000
(2,506,000)
3,329,000
0
(375,000)
0
5,000
453,000
(1,593,000)
6,158,000
(90,000)
(104,000)
4,371,000
795,000
26,000
(38,000)
0
(51,000)
69,000
(20,000)
(47,000)
32,000
(6,000)
(63,000)
(11,000)
(40,000)
(22,000)
(314,000)
0
913,000
0
(16,000)
11,000
594,000
(650,000)
(32,000)
0
(121,000)
(803,000)
5,527,000
616,000
$ 6,143,000
(231,000)
847,000
616,000
$
$
$
$
$
54,000
0
0
30,000
171,000
$
$
87,000
$ 1,500,000
0
$
Good Times Restaurants Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Summary of Significant Accounting Policies:
Organization – Good Times Restaurants Inc. (Good Times or the Company) is a Nevada corporation. The Company
operates through its wholly owned subsidiaries Good Times Drive Thru Inc. (Drive Thru) and BD of Colorado LLC
(Bad Daddy ’ s).
Drive Thru commenced operations in 1986 and, as of September 30, 2013, operates twenty-five company-owned
and joint venture drive-thru fast food hamburger restaurants. The Company ’ s restaurants are located in Colorado.
In addition, Drive Thru has thirteen franchises, ten operating in Colorado, two in Wyoming and one in North
Dakota, and is offering franchises for development of additional Drive Thru restaurants.
In April 2013 we entered into a series of agreements with Bad Daddy ’ s International, LLC, a North Carolina
limited liability company ( “ BDI ” ), and Bad Daddy ’ s Franchise Development, LLC, a North Carolina limited
liability company ( “ BDFD ” ), to acquire the exclusive development rights for Bad Daddy ’ s Burger Bar
restaurants in Colorado, additional restaurant development rights for Arizona and Kansas, and a 48% voting
ownership interest in the franchisor entity, BDFD.
In April 2013 we formed a limited liability company, BD of Colorado LLC, for the purpose of developing and
operating the franchised Bad Daddy ’ s Burger Bar restaurants. Good Times Restaurants Inc is the sole member of
the limited liability company and its operations are included in the condensed consolidated financial statements
included herein.
In April 2013, we executed a Subscription Agreement for the purchase of 4,800 Class A Units of BDFD,
representing a 48% voting membership interest in BDFD, for the aggregate subscription price of $750,000. The
subscription price was payable in two equal installments, the first $375,000 installment was paid on the date of
execution of the Subscription Agreement, and the remaining $375,000 installment was paid in December 2013. The
Company accounts for this investment using the equity method.
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
subsidiaries 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 2012 the Company closed 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 2012 in connection with the sales of each of these restaurants and their combined
operating losses were approximately $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.
F-7
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, 2013 and 2012 the Company incurred expenses of $6,000 and $15,000,
respectively, and has a remaining lease liability of $68,000 as of September 30, 2013, 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
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. The Company maintains cash and cash equivalents at
financial institutions with balances that at times may be in excess of the Federal Deposit Insurance Corporation ( “
FDIC ” ) insured limits of up to $250,000. The Company has not experienced any losses related to such accounts
and management believes that the Company is not exposed to any significant risks on these accounts. Certain of the
Company ’ s accounts exceeded the FDIC insured limits as of September 30, 2013.
Accounts Receivable – Accounts receivable include uncollateralized receivables from our franchisees and our
advertising fund, due in the normal course of business, generally requiring payment within thirty days of the invoice
date. On a periodic basis the Company monitors all accounts for delinquency and provides for estimated losses of
uncollectible accounts. Currently and historically there have been no allowances for unrecoverable accounts
receivable.
Inventories – Inventories are stated at the lower of cost or market, determined by the first-in first-out method, and
consist of restaurant food items and related packaging supplies.
Property and Equipment – Property and equipment are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the related assets, generally three to eight years. Property and equipment
under capital leases are stated at the present value of minimum lease payments and are amortized using the straight-
line method over the shorter of the lease term or the estimated useful lives of the assets. Leasehold improvements
are amortized using the straight-line method over the shorter of the term of the lease or the estimated useful life of
the asset.
Maintenance and repairs are charged to expense as incurred, and expenditures for major improvements are
capitalized. When assets are retired, or otherwise disposed of, the property accounts are relieved of costs and
accumulated depreciation with any resulting gain or loss credited or charged to income.
At September 30, 2012 we classified $1,380,000 of net assets as held for sale in the accompanying consolidated
balance sheet. The costs were related to a site in Firestone, Colorado which had been fully developed. On November
30, 2012 we completed a sale lease-back transaction on the property. The net sale leaseback proceeds of $1,377,000
were used to reduce the PFGI II term loan by $765,000 and to increase our working capital.
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, 2013 and given the results of our analysis there were no
restaurants which are impaired.
Goodwill – The Company is required to test goodwill for impairment on an annual basis or whenever indications of
impairment arise including, but not limited to, a significant decline in cash flows from store operations. Such tests
could result in impairment charges. As of September 30, 2013, the Company had $96,000 of goodwill related to the
purchase of a franchise operation on December 31, 2012. There was no impairment required to the acquired
goodwill as of September 30, 2013.
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.
F-8
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 $324,000 as of
September 30, 2013) is reflected in the accompanying consolidated balance sheet as a deferred liability. Also
included in the $653,000 deferred and other liabilities balance is a $257,000 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.
Revenue Recognition – Revenue from company restaurant sales is recognized when the food and beverage products
are sold and are presented net of sales taxes.
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.
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 2010 through 2013. 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, 2013.
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 324,854 and 175,289 shares of common stock, and
warrants for 3,795,000 and 70,871 shares of common stock, were not included in computing diluted EPS for 2013
and 2012, respectively, because their effects were anti-dilutive.
F-9
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 affected 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, 2013 notes receivable totaled $15,000 and is due from one entity. Additionally, the
Company has other current receivables totaling $193,000, which includes $71,000 of franchise receivables, $46,000
due from an affiliate and $76,000 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.
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 8 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 one franchisee
with a note payable to the Company. This franchisee is a VIE, however, the franchisee is the primary beneficiary of
the entity, not the Company. Therefore it is 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 new accounting pronouncements that affect the Company.
F-10
2.
Debt and Capital Leases :
Note payable with PFGI II, LLC was paid in full in January 2013
Note payable with Wells Fargo Bank, NA was paid in full in October 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
Less current portion
Long term portion
2013
$
$
0
0
2012
1,319,000
232,000
102,000
129,000
36,000
0
52,000
(7,000)
138,000
(44,000)
94,000
1,725,000
(1,586,000)
139,000
$
$
In conjunction with the Wells Fargo Bank term loan, the Company had entered into a variable to fixed interest rate
swap agreement with Wells Fargo Bank. In October 2012 the Wells Fargo loan and associated swap agreement were
paid in full and terminated.
As of September 30, 2013, principal payments on debt become due as follows:
Years Ending
September 30,
2014
2015
2016
2017
$
$
44,000
46,000
37,000
11,000
138,000
F-11
3.
Other Accrued Liabilities :
Other accrued liabilities consist of the following at September 30, 2013:
Wages and other employee benefits
Taxes, other than income tax
Other
Total
4.
Commitments and Contingencies :
$
2013
305,000
505,000
173,000
$
2012
270,000
436,000
150,000
$
983,000
$
856,000
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 15 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 2013 and 2012.
Following is a summary of operating lease activities:
Minimum rentals
Less sublease rentals
Net rent paid
Year Ended
September 30, 2013
$ 2,131,000
(424,000)
$ 1,707,000
As of September 30, 2013, future minimum rental commitments required under the Company ’ s operating leases
that have initial or remaining non-cancellable lease terms in excess of one year are as follows:
Years Ending September 30,
2014
2015
2016
2017
2018
Thereafter
Less sublease rentals
$
2,065,000
1,767,000
1,633,000
1,639,000
1,625,000
7,183,000
15,912,000
(2,453,000)
$ 13,459,000
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.
5.
Income Taxes :
Deferred tax assets (liabilities) are comprised of the following at September 30:
Deferred assets (liabilities):
Tax effect of net operating loss carry-forward
(includes $8,400 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
2013
2012
Current
Long Term
Current
Long Term
$
$
0
0
0
0
12,000
12,000
(12,000)
0
$ 2,733,000
168,000
107,000
400,000
94,000
3,502,000
(3,502,000)
0
$
$
$
0
0
0
0
68,000
68,000
(68,000)
0
$ 2,666,000
148,000
117,000
387,000
57,000
3,375,000
(3,375,000)
0
$
*
The valuation allowance increased by $71,000 during the year ended September 30, 2013.
The Company has net operating loss carry-forwards available for future periods, as discussed below, of
approximately $1,463,000 from 2012 and 2013, 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.
Total income tax expense for the years ended 2013 and 2012 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
6.
Related Parties :
$
2013
(240,000)
(21,000)
71,000
29,000
149,000
12,000
2012
$ (272,000)
(23,000)
(403,000)
13,000
680,000
5,000
$
0
$
0
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
2013 and is month to month thereafter. Rent paid to them in fiscal 2013 and 2012 for office space was $59,000 and
$58,000, respectively.
F-12
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 $0 and $44,000 for the fiscal years
ending September 30, 2013 and 2012, respectively. There were no amounts due from The Bailey Company related
to the agreement at September 30, 2013 or 2012.
In April 2012 the Company entered into a financial advisory services agreement with Heathcote Capital LLC
pursuant to which they were to 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. On March 25, 2013, the Company and
Heathcote modified this agreement to exclude any transactions involving the Maxim Group LLC and for Heathcote
to continue to provide non-exclusive financial advisory services to the Company. Total amounts paid to Heathcote
Capital LLC were $27,900 and $48,600 in fiscal 2013 and fiscal 2012, respectively. On September 27, 2013, the
Company and Heathcote further modified this agreement to provide for investor relations activities specifically
related to the exercise of the outstanding warrants and the trading volume in the Company ’ s stock and other
corporate finance projects as determined by the CEO of the company. The modification was approved by the Audit
Committee of the Company ’ s Board of Directors.
In April 2013 the Company entered into a management services agreement with BDFD pursuant to which the
Company will provide general management services as well as accounting and administrative services. Income
received from the agreement by the Company is fully recognized in income and then proportionately offset by the
48% equity investment in BDFD. Total amounts received from BDFD were $11,000 in fiscal 2013.
7.
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, 2013:
Level 2:
Interest Rate Swap liability:
Balance at beginning of year
Balance at end of year
Net change
2013
$ 7,000
$
0
$ 7,000
2012
$ 57,000
$ 7,000
$ 50,000
The unrealized gains for the years ending September 30, 2013 and September 30, 2012 of $0 and $20,000,
respectively, are reported in the Consolidated Statement of Operations. In conjunction with the payoff of the Wells
Fargo Bank note in October 2012 we paid off the interest rate swap liability of $7,000. There were no transfers in or
out of Level 3 for the year ending September 30, 2013.
8.
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 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. The
F-13
Company ’ s Board of Directors determined that it did not require such funds to maintain the minimum stockholders
’ equity requirement. As a result, SII did not complete its purchase of the additional 118,483 shares of Series C
Convertible Preferred Stock.
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 of 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.
Common Stock
Public Offering – On August 21, 2013 we completed a public offering of 2,200,000 shares of common stock,
together with warrants to purchase 2,200,000 shares of our common stock ( “ A Warrants ” ) and additional warrants
to purchase 1,100,000 shares of our common stock ( “ B Warrants ” ) with a per unit purchase price of $2.50. One
share of common stock was sold together with one A Warrant, with each A Warrant being exercisable on or before
August 16, 2018 for one share of common stock at an exercise price of $2.75 per share, and together with one B
Warrant, with two B Warrants being exercisable on or before May 16, 2014 for one share of common stock at an
exercise price of $2.50 per share.
Public offering price
Underwriting discounts and commissions
Proceeds, before expenses, to us
Expenses, to us
Net proceeds, to us
Per Share
$
$
$
$
$
2.500
0.175
2.325
0.207
2.118
Total
$ 5,500,000
$
385,000
$ 5,115,000
$
456,000
$ 4,659,000
F-14
We intend to use the net proceeds from this offering for our remaining required equity contribution to Bad Daddy ’ s
Franchise Development; for the remodeling and reimaging of existing Good Times Burgers & Frozen Custard
restaurants; for the development of new Bad Daddy ’ s Burger Bar restaurants through BD of Colorado LLC; and as
working capital reserves and future investment at the discretion of our Board of Directors.
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, 2013, 175,146
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 2013 and 2012. 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, 2013 and 2012 includes $171,000 and $69,000, respectively, of
compensation costs related to our stock-based compensation arrangements.
During the fiscal year ended September 30, 2013, the Company granted a total of 47,000 non-statutory stock
options with exercise prices ranging from $2.31 to $2.44 and per-share weighted average fair values ranging from
$1.96 to $2.09. In addition the Company granted a total of 110,421 incentive stock options with an exercise price of
$2.31 and a per-share weighted average fair values of $1.96.
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.
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 2013
Incentive Stock
Options
6.5
110.5%
1.13%
0
Fiscal 2013
Non-Statutory Stock
Options
6.4 to 7.1
106% to 112.3%
1.28% to 1.84%
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.
F-15
A summary of stock option activity under our share-based compensation plan for the fiscal year ended September
30, 2013 is presented in the following table:
Outstanding-beg of year
Granted
Exercised
Forfeited
Expired
Outstanding Sept 30, 2013
Exercisable Sept 30, 2013
Options
175,289
157,421
0
(4,000)
(3,857)
324,853
161,200
Weighted Average
Exercise Price
$6.18
$2.34
$1.89
$8.10
$4.35
$6.66
Weighted Average
Remaining
Contractual Life
(Yrs.)
Aggregate
Intrinsic Value
7.3
6.1
$
$
75,000
29,000
As of September 30, 2013, the total remaining unrecognized compensation cost related to unvested stock-based
arrangements was $169,000 and is expected to be recognized over a weighted average period of 2.25 years.
There was no intrinsic value of stock options exercised during the fiscal year ended September 30, 2013 as no
options were exercised.
Warrants – In connection with the public offering in August 2013 we issued 2,200,000 warrants to purchase
2,200,000 shares of our common stock ( “ A Warrants ” ) and an additional 2,200,000 warrants to purchase
1,100,000 shares of our common stock ( “ B Warrants ” ). Each A Warrants is exercisable on or before August 16,
2018 for one share of common stock at an exercise price of $2.75 per share and two B Warrants are exercisable on
or before May 16, 2014 for one share of common stock at an exercise price of $2.50 per share.
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, expiring 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 was amortized over the term of thirty six months and charged to interest expense. The warrants
expired unexercised on December 12, 2012.
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 unexercised on December 12, 2012.
A summary of warrant activity for the fiscal year ended September 30, 2013 is presented in the following table:
Outstanding-beg of year
Issued
Expired
Outstanding and exercisable at Sept 30, 2013
Number of Shares
70,871
3,795,000
(70,871)
3,795,000
Weighted Average
Exercise Price Per Share
$2.82
$2.67
$2.82
$2.67
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
9.
Investment in Affiliate
On April 15, 2013, the Company executed a Subscription Agreement for the purchase of 4,800 Class A Units of
BDFD, representing a 48% non-controlling voting membership interest in BDFD, for the aggregate subscription
price of $750,000. The subscription price was payable in two equal installments, the first $375,000 installment was
paid on the date of execution of the Subscription Agreement, and the remaining $375,000 installment was paid in
December 2013.
The Company accounts for this investment using the equity method. Thus, during fiscal 2013, the Company
recorded its portion of the investment in BDFD of $375,000. For the twelve months ending September 30, 2013 the
Company recorded a net loss of $102,000 for its share of the joint venture ’ s operating results. The carrying value
at September 30, 2013 was $273,000, which is represented as Investment in Affiliate in the accompanying
condensed consolidated balance sheets.
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 2013 or fiscal 2012.
F-17
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.
December 27, 2013
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
December 27, 2013
/s/ Susan M. Knutson
Susan M. Knutson, Controller and
Principal Financial Officer
December 27, 2013
/s/ Geoffrey R. Bailey
Geoffrey R. Bailey, Director
Date: December 27, 2013
/s/ Reuven Har-Even
Reuven Har-Even, Director
December 27, 2013
/s/ Gary J. Heller
Gary J. Heller, Director
December 27, 2013
/s/ Boyd E. Hoback
Boyd E. Hoback, Director and
President and CEO
December 27, 2013
/s/ Steven M. Johnson
Steve Johnson, Director
December 27, 2013
/s/ Eric W. Reinhard
Eric W. Reinhard, Director
December 27, 2013
/s/ Alan A. Teran
Alan A. Teran, Director
December 27, 2013
33
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 27, 2013
/s/ Boyd E. Hoback
Boyd E. Hoback
President and Chief Executive Officer
Exhibit 31.2
I, Susan M. Knutson, certify that:
CERTIFICATION OF THE CONTROLLER
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 27, 2013
/s/ Susan M. Knutson
Susan M. Knutson
Controller
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Good Times Restaurants Inc. (the “ Company ” )
for the fiscal year ended September 30, 2013 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 27, 2013
/s/ Susan M. Knutson
Susan M. Knutson
Controller (principal financial officer)
December 27, 2013
1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference of our report dated December 27, 2013, 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.
Hein & Associates LLP
Denver, Colorado
December 27, 2013
FIRST AMENDMENT TO
AMENDED AND RESTATED
OPERATING AGREEMENT OF
BAD DADDY'S FRANCHISE DEVELOPMENT, LLC
THIS FIRST AMENDMENT TO AMENDED AND RESTATED OPERATING AGREEMENT OF
BAD DADDY'S FRANCHISE DEVELOPMENT, LLC ("First Amendment") is made and entered into
as of this 31 st day of October, 2013, by and between the undersigned.
WITNESSETH
WHEREAS , Bad Daddy's Franchise Development, LLC (the "Company") was formed on
August 2, 2011 by the filing of the Articles of Organization with the North Carolina Department of the
Secretary of State;
WHEREAS , the undersigned and the Company are parties to that certain Amended and
Restated Operating Agreement of Bad Daddy's Franchise Development, LLC dated as of April 9, 20 13
(the " Operating Agreement "); and
WHEREAS , the undersigned, representing all of the Class A Members (as defined in the
Operating Agreement) of the Company, desire to amend the Operating Agreement as set forth herein.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby agree as follows:
1.
The first sentence of Section 2.2(b )(i) of the Operating Agreement is deleted in its
entirety and replaced with the following for all purposes whatsoever:
"On or before December 1, 2013, the Class A Members shall be required to
make the following additional Capital Contributions, without any notice or
other action on the part of the Board being required."
2.
This First Amendment shall be governed by and construed in accordance with the laws
of the State of North Carolina. This First Amendment may be executed in two or more counterparts,
each of which shall be deemed to be an original but all of which together shall constitute one and the
same instrument.
3.
Except as set forth in this First Amendment, the Operating Agreement shall remain
unchanged and unmodified and in full force and effect.
[Signatures on following page]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment as of the date first
above written.
MEMBERS:
BAD DADDY'S INTERNATIONAL, LLC
By:
/s/ Dennis L. Thompson
Dennis L. Thompson, Manager
By:
/s/ Joseph F. Scibelli
Joseph F. Scibelli , Manager
Address:
601 South Kings Drive, Suite HH
Charlotte, North Carolina 28204
ATTN: Managers
GOOD TIMES RESTAURANTS INC.
By:
/s/ Boyd E. Hoback
Boyd E. Hoback , Chief Executive Officer
Address:
601 Corporate Circle
Golden, Colorado 80401-5622