Good Times Restaurants Inc. - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Good Times Restaurants Inc. for the period ended March 31, 2010. The company operates and franchises a total of 50 Good Times restaurants, primarily in Colorado. The company is classified as a smaller reporting company and is currently exploring strategic alternatives to enhance shareholder value and reduce the costs of being a public entity.
Key Financial Metrics
| Metric | Six Months Ended Mar 31, 2010 | Six Months Ended Mar 31, 2009 |
|---|---|---|
| Total Revenues | $9,723,000 | $10,859,000 |
| Net Loss | ($1,948,000) | ($1,311,000) |
| Net Loss Applicable to Common Shareholders | ($1,838,000) | ($1,247,000) |
| Loss Per Share (Basic & Diluted) | ($0.46) | ($0.32) |
| Cash and Cash Equivalents (End of Period) | $533,000 | $601,000 |
| Net Cash Used in Operating Activities | ($670,000) | ($808,000) |
| Total Debt (Current + Long-Term) | $3,651,000 | $3,505,000 |
| Working Capital | ($2,137,000) Deficit | ($1,200,000) Deficit |
Note: Total Debt calculated as Current maturities of long-term debt ($1,252,000) plus Long-term debt ($2,399,000).
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 10.5% ($1.136 million) compared to the prior year period. Same-store restaurant sales declined 10.4% due to the macroeconomic environment, adverse weather conditions, and increased competitor discounting.
- Increased Losses: The net loss increased by 48.6% year-over-year. This was driven by a 27% increase in the loss from operations and a 129% increase in the loss from discontinued operations.
- Discontinued Operations: The company closed a dual-branded restaurant in Commerce City, Colorado, in March 2010. This resulted in a $421,000 loss for the six-month period, including a $217,000 asset impairment charge and $117,000 in future lease obligations.
- Cost Pressures: Restaurant operating costs as a percentage of sales increased to 101.8% (from 97.5% in the prior year), primarily due to rising food and packaging costs (up 5.7% weighted average) and higher payroll costs as a percentage of sales due to lower revenue volume.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management maintains a cautious outlook for fiscal 2010, anticipating continued economic pressure on consumer spending and competitive pricing. A 3.8% weighted average menu price increase is planned for May 2010, though this may be offset by price promotions.
- Liquidity and Debt Covenants: The company is in default of technical loan covenants (EBITDA coverage and Tangible Net Worth) with Wells Fargo Bank regarding a $786,000 note. While not in payment default, the bank has reserved rights to accelerate the loan. The company has a working capital deficit of $2.1 million and states it may not be able to satisfy liabilities without raising additional capital.
- Recent Financing: In February 2010, the company secured a $400,000 convertible loan from W Capital, John T. MacDonald, and Golden Bridge, LLC. In January 2010, the PFGI II LLC loan was extended to December 2012 with an interest rate increase to 8.65%.
- Strategic Alternatives: A Special Committee has been formed to explore strategic alternatives, including potential sales of underperforming restaurants or sale-leaseback transactions, to reduce debt and improve liquidity.
- Risks: Key risks include the inability to raise additional capital, acceleration of the Wells Fargo debt, continued same-store sales declines, and contingent liabilities related to franchisee lease defaults.
Investor Verification Checklist
- Debt Covenant Status: Verify the current status of the Wells Fargo Bank covenant default and whether a "Required Corrective Action" plan has been approved to prevent loan acceleration.
- Liquidity Runway: Assess the sufficiency of the $533,000 cash balance and the $400,000 new loan to cover operating losses and debt service through the end of fiscal 2010.
- Strategic Alternatives: Monitor progress on the Special Committee's review of strategic alternatives, specifically any potential asset sales or sale-leaseback transactions.
- Same-Store Sales Trend: Track same-store sales performance in upcoming quarters to determine if the 10.4% decline is stabilizing or worsening.
- Discontinued Operations: Confirm the final settlement of lease obligations and asset write-downs related to the closed Commerce City location.