Good Times Restaurants Inc. — FY2011 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended September 30, 2011; it does not provide separate fourth-quarter financial results. Good Times operates and franchises drive-through burger and frozen-custard restaurants, primarily in Colorado. At December 2011, the system had 45 restaurants. The financial statements were audited, and the auditor issued an unqualified opinion.
Key financial results
| Metric | FY2011 | FY2010 |
|---|---|---|
| Total revenue | $20.603 million | $20.863 million |
| Restaurant sales | $20.183 million | $20.390 million |
| Same-store sales | Up 6.2% | Prior-year comparison not stated here |
| Operating loss | $665,000 | $1.912 million |
| Loss from continuing operations | $917,000 | $2.507 million |
| Net loss applicable to common shareholders | $1.013 million; $0.42 per share | $2.932 million; $2.26 per share |
| Cash from operating activities | $(539,000) | $(737,000) |
| Cash and cash equivalents at year-end | $847,000 | $429,000 |
| Working capital | $(488,000) | $(1.869) million |
| Total debt and capital leases | $2.262 million | $3.707 million |
| Stockholders’ equity | $2.520 million | $1.694 million |
Restaurant operating costs declined to 95.8% of restaurant sales from 97.2%, an improvement in restaurant-level margin to approximately 4.2% from 2.8%. Food and packaging costs rose to 35.9% of restaurant sales from 35.2%; payroll costs fell to 34.9% from 36.1%. Investing cash flow was $954,000, including $1.143 million of asset-sale proceeds and $189,000 of property and equipment purchases. Financing cash flow was $3,000, reflecting $1.617 million of debt principal payments and $1.727 million of stock-sale proceeds.
Material changes versus FY2010
- Revenue declined 1.2%, but same-store sales increased 6.2%. Sales from restaurants sold or otherwise removed from the system offset comparable-store growth.
- Operating loss narrowed by $1.247 million. The improvement reflected lower payroll, occupancy, advertising and general and administrative costs, gains on restaurant asset sales, and improved restaurant-level cost ratios.
- Net loss narrowed substantially, also benefiting from $319,000 lower net interest expense and a $22,000 gain from discontinued operations versus a $590,000 loss in FY2010.
- Cash increased by $418,000 to $847,000. Asset-sale proceeds and the prior-year equity financing helped fund significant debt repayments.
- The company issued 1.4 million shares to Small Island Investments for $2.1 million gross proceeds in December 2010 and completed a one-for-three reverse stock split. Small Island held approximately 50.7% of common stock at December 15, 2011.
Outlook, risks and unusual items
- Management described the sales outlook as optimistic after 16 consecutive months of same-store sales increases through November 2011, while cautioning that the macroeconomic environment remained challenging.
- FY2012 plans include modest menu price increases, menu engineering and product launches. Management targeted a 2%–3% reduction in food-cost margin by the end of FY2012; it also expected advertising spending to rise to approximately 4.3% of restaurant sales.
- Management cited limited capital as a constraint on new restaurant development and was not soliciting new franchisees. It planned to prioritize existing-store investment and evaluate closures or sales of underperforming locations.
- At September 30, 2011, debt included a $1.645 million PFGI II note at 8.65%, with a balloon maturity on December 31, 2012. The company also reported a $529,000 Wells Fargo balance at year-end.
- After year-end, Wells Fargo notified the company of covenant defaults, including a tangible-net-worth requirement and missing landlord consent documents. A December 2011 amendment waived the defaults and changed covenants and repayment terms, but was conditioned on the Littleton restaurant sale. The sale was expected to provide approximately $310,000 net proceeds, including a $100,000 principal prepayment; the filing describes the remaining Wells Fargo balance as approximately $349,000 as of January 2, 2012.
- Risks include accumulated losses of $17.680 million, recurring working-capital deficits, need for additional financing, commodity-price pressure, intense competition, Colorado market concentration, dependence on one food-and-paper supplier, and possible lease obligations if franchisees default on assigned or subleased leases. Management reported no material legal proceedings and no restaurant impairment at year-end, based on its forecasts.
Important facts for investors to verify
- Whether the Littleton sale closed and the Wells Fargo amendment’s conditions were satisfied; confirm subsequent debt balances and covenant compliance.
- Whether the PFGI II note’s December 2012 balloon was extended, refinanced or repaid.
- Whether positive comparable sales persisted and whether planned menu changes offset commodity inflation without reducing traffic or margins.
- Whether operating cash flow improved enough to support debt service, recurring capital expenditures and working-capital needs.
- Whether further restaurant closures, franchise exits, or contingent lease liabilities affected results after the reporting date.