Good Times Restaurants Inc. - Annual Report: 2015 (Form 10-K)

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Title of each class	Name of each exchange on which registered
Common Stock $.001 par value	NASDAQ Capital Market

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.		Yes oNo x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.		Yes oNo x
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.		Yes xNo o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)		Yes xNo o
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.		x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o                                                                  Accelerated Filer o                                    Non-Accelerated Filer oSmaller Reporting Companyx
Indicate by check mark whether the registration is a shell company (as defined in Rule 12b-2 of the Exchange Act).			Yes oNo x
As of December 16, 2015, the aggregate market value of the 11,192,942 shares of common stock held by non-affiliates of the registrant, based on the closing sales price of the common stock on December 16, 2015 of $4.47 per share as reported on the NASDAQ Capital Market, was $50,032,451.
As of December 16, 2015, the registrant had 12,259,550 shares of common stock outstanding.

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		PAGE
	PART I
Item 1	Business	4
Item 1A	Risk Factors	16
Item 1B	Unresolved Staff Comments	23
Item 2	Properties	23
Item 3	Legal Proceedings	23
Item 4	Mine Safety Disclosures	23
	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6	Selected Financial Data	25
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8	Financial Statements and Supplementary Data	32
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
Item 9A	Controls and Procedures	33
Item 9B	Other Information	33
	PART III
Item 10	Directors, Executive Officers and Corporate Governance	34
Item 11	Executive Compensation	34
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13	Certain Relationships, Related Transactions, and Director Independence	34
Item 14	Principal Accountant Fees and Services	34
	PART IV
Item 15	Exhibits, Financial Statement Schedules	35
Signatures		38

 

 

 

ITEM 1.

BUSINESS

 

 

 

 

 

 

 

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The Good Times brand has had twenty-one consecutive quarters of same store sales growth.

 

·

We had a 6.9% increase in same store sales for the fiscal year ended September 30, 2015 (“fiscal 2015”) in addition to the increase in same store sales for fiscal 2014 of 14.6%.

 

·

We ended fiscal 2015 with $13.8 million in cash and total notes payable of $3.7 million.

 

·

Our net revenues for fiscal 2015 increased by $16,314,000 (+58.8%) to $44,057,000 from $27,743,000 in fiscal year 2014, primarily due to increased same store sales at Good Times, the opening of two Good Times and one Bad Daddy’s locations during fiscal 2015, and the inclusion of revenues for the Bad Daddy’s locations acquired on May 7, 2015.

 

·

Our loss from operations was $239,000 in fiscal 2015 compared to $219,000 in fiscal 2014.  Fiscal 2015 included $648,000 of acquisition costs related to the BDI acquisition.

 

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Our net loss was $300,000 for fiscal 2015 compared to $370,000 for fiscal 2014, including $784,000 and $669,000 of preopening costs in fiscal 2015 and fiscal 2014, respectively.

 

·

During fiscal 2012, we began a reimaging and remodeling program for our older Good Times restaurants that continued through fiscal 2015 and that we plan to continue into fiscal 2016.  In fiscal 2015 we spent approximately $1,592,000 on recurring and remodeling capital expenditures and we plan to spend approximately $1,250,000 on recurring and remodeling capital expenditures in fiscal 2016.

 

·

We believe Good Times is the only quick service restaurant concept in Colorado offering all natural beef, chicken and bacon with no hormones, no steroids, no antibiotics and humanely raised, vegetarian fed animals with no animal byproducts in the feed in all of our hamburger, chicken and bacon menu items.

 

·

We continued our television campaign in fiscal 2015 that began in March of 2013 with four distinct product windows, communicating Good Times’ core brand attributes of fresh, all natural, hand crafted products with taste profiles available only at Good Times, which has contributed to our continued same store sales increases through fiscal 2015.

 

 

·

We opened two Good Times restaurants in fiscal 2015, each with new interior design finishes and décor that we believe continues to help set Good Times apart from mainstream hamburger quick service restaurants, utilizing finishes and design elements more commonly seen in fast casual restaurants.  We plan to build additional Good Times Burgers & Frozen Custard company-owned restaurants in Colorado, utilizing our 2,200 square foot, 48 seat dining room design, our 2,400 square foot, 70 seat dining room design as well as converting buildings from other restaurant concepts.

 

·

Our third Bad Daddy’s restaurant in Colorado opened on January 7, 2015 and we completed the acquisition of BDI in May 2015, which added seven additional restaurants.  We opened two additional Bad Daddy’s restaurants subsequent to the end of fiscal 2015 and plan to open several more during fiscal 2016.

 

 

 

 

(1)

100% Company-owned stores no longer pay a royalty following completion of our acquisition of BDI

(2)

Knoxville royalty escalates from 3% in 2015 to 4% in 2016 and 5% in 2017.

(3)

Charlotte airport pays a royalty fee of 4.25% of gross revenue directly to Good Times through its 100% ownership of BDI.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Values.  Each brand focuses on developing behaviors and expectations around our core values of Integrity, Respect, Continued Improvement, and Fun.

 

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People.  Each brand seeks to hire high quality people throughout and provide them with comprehensive training programs designed to ensure that they deliver consistently superior products and service.  Each has an incentive program at the restaurant level based on balanced metrics that drive customer service, personnel development, and financial performance.

 

·

Distinctive quality.  Each brand strives to offer unique, high quality menu items with distinctive taste profiles made with fresh, high quality ingredients.

 

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Excellent systems.  Each brand takes a “best practices” approach, cross-pollinating the best ideas that are applicable to either brand. We seek to provide the best operating systems and processes to ease the administrative burden of management, enabling them to focus on leading their team members.  Our philosophy is that systems and processes drive financial success and leadership serves as an example and motivating force to our crew members who interact with our guests, driving sales and customer loyalty.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

Good Times is a 28 year old company with a vibrant, high quality brand position in Colorado.

 

·

We have a relatively low level of bank debt, a healthy balance sheet with positive cash flow from operations and twenty-one consecutive quarters of same store sales growth at Good Times.

 

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We now own the Bad Daddy’s Burger Bar concept, which we believe is an exciting new, emerging growth concept.

 

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We have an existing infrastructure with sophisticated systems and processes in place that can be significantly leveraged with a new growth concept.

 

 

 

 

2.

Develop joint venture and/or franchised Bad Daddy’s.  We believe Bad Daddy’s market position and return on capital will attract considerable interest from experienced restaurateurs to franchise or joint venture the concept.  Prior to aggressively pursuing this option, however, we intend to further demonstrate the brand’s appeal through the development of additional company-operated restaurants.  We believe that by further proving the consumer acceptance and successful financial performance of the brand we will attract the highest quality development partners.  Our goal is to continue to explore and refine purchasing efficiencies, menu engineering and product development, labor efficiencies, restaurant staffing strategies and restaurant operating systems to reduce the total combined cost of sales and total labor and benefits costs (“Prime Costs”) for the Bad Daddy’s concept.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

			Company-Owned/Co-Developed/Joint Venture
	State		Good Times Burgers &                         Frozen Custard								Bad Daddy’s                          Burger Bar								Total
			2015				2014				2015				2014				2015				2014
	Colorado			27				26				5				2				32				28
	North Carolina			0				0				7				0				7				0
	Total:			27				26				12				2				39				28

			Franchise/License
	State		Good Times Burgers &                         Frozen Custard								Bad Daddy’s                          Burger Bar								Total
			2015				2014				2015				2014				2015				2014
	Colorado			9				9				0				0				9				9
	North Carolina			0				0				1				0				1				0
	South Carolina			0				0				1				0				1				0
	Tennessee			0				0				1				0				1				0
	Wyoming			2				2				0				0				2				2
	Total:			11				11				3				0				14				11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Restaurant point of sale;

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Restaurant back-of-house;

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Financial;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	the effects of our recent completion of the acquisition of BDI;

 

·	realizing the synergies contemplated by the acquisition of BDI;

 

·	effectively and timely integrating BDI;

 

·	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 2016;

 

·	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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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the inability to successfully combine our business as it existed prior to the acquisition with BDI in a manner that permits us to achieve the synergies and other benefits contemplated by the acquisition;

 

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the challenge of integrating complex systems, operating procedures, regulatory compliance programs, technology, networks and other assets of BDI in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

 

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potential unknown liabilities, liabilities that are significantly larger than we anticipated and unforeseen increased expenses associated with the acquisition, including cash costs to integrate the two businesses that may exceed the cash costs that we anticipated; and

 

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challenges coordinating geographically separate organizations.

 

 

 

 

 

 

 

 

 

Future changes in financial accounting standards may cause adverse unexpected operating results and affect our reported results of operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

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operating results that vary from the expectations of management, securities analysts and investors;

 

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developments in our business;

 

 

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the operating and securities price performance of companies that investors consider to be comparable to us;

 

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announcements of strategic developments, acquisitions and other material events by us or our competitors;

 

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negative economic conditions that adversely affect the economy, commodity prices, the job market and other factors that may affect the markets in which we operate;

 

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publication of research reports about us or the sectors in which we operate generally;

 

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changes in market valuations of similar companies;

 

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additions or departures of key management personnel;

 

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actions by institutional shareholders;

 

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speculation in the press or investment community; and

 

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the realization of any of the other risk factors included in this prospectus supplement or the prospectus.

 

 

 

 

 

 

 

 

 

 

 

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authorize our board of directors to establish one or more series of preferred stock the terms of which can be determined by the board of directors at the time of issuance;

 

 

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do not allow for cumulative voting in the election of directors unless required by applicable law.  Under cumulative voting a minority stockholder holding a sufficient percentage of a class of shares may be able to ensure the election of one or more directors;

 

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state that special meetings of our stockholders may be called only by the chairman of the board of directors, the president or any two directors and must be called by the president upon the written request of the holders of 25% of the outstanding shares of capital stock entitled to vote at such special meeting; and

 

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provide that the authorized number of directors is no more than seven, as determined by our board of directors.