GTIM

Good Times Restaurants Inc. - 10-Q Summary

Business Context and Reporting Period

This filing covers the quarterly period ended March 31, 2009. Good Times Restaurants Inc. operates and franchises 52 restaurants, primarily in Colorado, including dual-brand locations with Taco John's. The company is a smaller reporting company. As of May 15, 2009, there were 3,898,559 shares of common stock outstanding.

Key Financial Metrics

Note: Total Debt includes $910,000 in current maturities and $2,500,000 in long-term debt. The working capital deficit is primarily driven by the reclassification of the Wells Fargo note to current liabilities due to covenant defaults.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 8.5% year-over-year. Same-store sales for company-owned restaurants dropped 14.5% due to the macroeconomic environment, competitive discounting, and a severe snowstorm in March 2009 that cost an estimated $100,000 in sales.
• Widening Losses: The net loss more than doubled to $1.247 million. This was driven by lower revenues, increased interest expense ($108,000 increase), and a $116,000 unrealized loss on an interest rate swap.
• Cost Management: Despite revenue declines, the company reduced General and Administrative costs by $148,000 and Payroll costs by $251,000 through efficiency improvements and staff reductions. However, restaurant operating costs as a percentage of sales increased to 98.1% from 91.4%.
• Liquidity Pressure: Cash on hand decreased by $813,000 to $601,000. Operating cash flow turned negative, consuming $808,000 compared to a near-break-even position in the prior year.

Guidance, Risks, and Contingencies

• Debt Covenant Default: The company is in default of technical loan covenants (EBITDA coverage and Tangible Net Worth) with Wells Fargo Bank regarding a $904,000 note. While the bank is not currently accelerating the loan, it has reserved all rights. The company expects to remain current on payments but requires a "Required Corrective Action" to resolve the default.
• Subsequent Financing: On April 20, 2009, the company secured $185,000 in new financing from Golden Bridge, LLC (a related party) and extended the maturity of its $2.5 million line of credit with PFGI II, LLC to July 2010.
• Outlook: Management remains cautious regarding fiscal 2009 due to economic pressures. However, they anticipate sales trends will improve in the second half of the fiscal year as comparisons shift to the declining sales of the prior year.
• Asset Impairment Risk: The company has not recorded impairments to date but warns that continued sales declines could materially affect future results.
• Contingent Liabilities: The company remains contingently liable on land leases for restaurants previously sold to franchisees.

Investor Verification Checklist

• Covenant Resolution: Verify if the company has successfully negotiated a waiver or modification of the Wells Fargo loan covenants to prevent acceleration of the $904,000 debt.
• Cash Burn Rate: Monitor the $601,000 cash balance against the negative operating cash flow of $808,000 for the six-month period to assess runway without further financing.
• Same-Store Sales Trend: Track the recovery of same-store sales in the second half of fiscal 2009 to confirm management's expectation of improvement.
• Related Party Transactions: Review the terms of the $185,000 loan from Golden Bridge, LLC, noting that the lenders are board members and stockholders.
• Asset Sale Progress: Confirm the status of the Firestone, Colorado restaurant (valued at $1.595 million) which is being marketed for a sale-leaseback transaction to reduce debt.