Good Times Restaurants Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended September 30, 2015. Although the request identifies 2015 Q4, this filing reports full-year results; separate fourth-quarter figures are not provided in the supplied text. Amounts below are in U.S. dollars.
Business context
The company operates Good Times Burgers & Frozen Custard, a quick-service restaurant concept concentrated in Colorado, and Bad Daddy’s Burger Bar, an upscale casual-dining concept. On May 7, 2015, it acquired Bad Daddy’s International (BDI), including the remaining interest in the Bad Daddy’s franchisor, brand intellectual property and restaurant interests in North Carolina. Fiscal 2015 therefore includes only part-year results from the acquired business.
Financial and operating highlights
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net revenue | $44.057 million | $27.743 million |
| Loss from operations | $239,000 | $219,000 |
| Consolidated net loss | $300,000 | $370,000 |
| Net loss attributable to Good Times/common shareholders | $791,000 | $749,000 |
| Cash provided by operations | $3.168 million | $1.438 million |
| Cash and cash equivalents at year-end | $13.809 million | $9.894 million |
| Working capital | $7.470 million | $7.841 million |
| Total notes payable and capital lease obligations | $3.721 million | $288,000 |
Revenue grew 58.8%, primarily from the BDI acquisition, higher Good Times comparable sales and new restaurant openings; the increase should not be read as wholly organic growth. Good Times same-store sales increased 6.9%, comprising approximately 3.5% menu pricing and 3.4% traffic growth, following 14.6% growth in FY2014. Good Times segment operating income was $520,000; Bad Daddy’s reported a $759,000 segment operating loss, including expansion and preopening costs. Acquisition costs were $648,000, and total preopening costs were $784,000.
Food and packaging costs rose to 33.9% of restaurant sales from 33.5%; management cited prior increases in beef and bacon costs. Payroll and benefits were $14.387 million, and depreciation and amortization was $1.246 million. The consolidated operating loss was approximately 0.5% of revenue. The filing reports both consolidated net loss and the larger loss attributable to the parent/common shareholders because of income attributable to non-controlling interests.
Material changes and capital position
- The BDI purchase price was $21.402 million, comprising $18.988 million cash and a $2.414 million secured note due in May 2016 at 3.25%. The acquisition added $3.9 million of trademarks and approximately $14.970 million of goodwill.
- A May 2015 public offering of 2,783,810 shares generated approximately $20.6 million in net proceeds. Shares outstanding rose to 12,259,550 at September 30, 2015, from 8,256,591 a year earlier.
- Cash used in investing activities was $23.715 million, including $17.612 million for the acquisition, net of cash acquired, and $7.633 million of property and equipment purchases. Financing activities provided $24.462 million.
- Of $3.721 million in debt and capital lease obligations, $2.617 million was classified as current, chiefly reflecting the BDI note due in 2016. The company reported compliance with United Capital loan covenants at year-end.
- Operating lease commitments totaled $34.305 million before sublease rentals and $32.387 million net of those rentals. The company remains contingently liable on certain assigned or subleased leases.
Outlook, risks and unusual matters
Management described its FY2016 Good Times outlook as cautiously optimistic and said comparable-sales growth may moderate against strong prior-year comparisons. It planned one additional Good Times opening, several Bad Daddy’s openings, and approximately $1.25 million in recurring and remodeling capital expenditures. Management believed available capital would be sufficient for FY2016 working capital, debt service and recurring capital needs; this is a forward-looking expectation, not a guarantee.
Principal risks include execution and integration of BDI, the capital and management demands of Bad Daddy’s expansion, competition, food and labor cost inflation, hiring and retention, site availability, consumer demand, and the possibility that new restaurants may not become profitable as expected. The company had an accumulated deficit of $20.804 million and warned it could incur a loss in FY2016.
Management concluded that disclosure controls and internal control over financial reporting were ineffective at September 30, 2015 because of a material weakness in recording unpaid development costs and related liabilities in the proper period. Management described a project-by-project review process to address the weakness. No material legal proceedings were reported. The independent auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
Important facts for investors to verify
- How much of revenue and operating performance reflects acquired BDI operations versus comparable-store and other organic growth.
- Repayment or refinancing of the $2.414 million BDI note due May 2016, and the timing and amount of other debt maturities.
- Whether Bad Daddy’s expansion improves segment profitability and cash generation, given its FY2015 operating loss.
- Whether the development-cost accrual material weakness was remediated and whether subsequent filings show reliable control operation.
- Actual FY2016 openings and capital spending compared with management’s plans, and the effect of lease obligations and contingent lease guarantees on liquidity.