UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended:March 31, 1996 Commission File Number: 0-18590
GOOD TIMES RESTAURANTS INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
84-1133368
(I.R.S. Employer Identification No.)
8620 WOLFF COURT, SUITE 330, WESTMINSTER, CO 80030
(Address of principal executive offices) (Zip Code)
(303) 427-4221
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
since last report.)
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 (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Total number of shares of common stock outstanding at March
31, 1996.
6,314,824 SHARES OF COMMON STOCK, .001 PAR VALUE
<PAGE>
Form 10-QSB
Quarter Ended March 31, 1996
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1996 and September 30, 1995
Consolidated Statements of Operations -
For the three months ended March 31,
1996 and 1995 and for the six months ended
March 31, 1996 and 1995
Consolidated Statements of Cash Flow -
For the three months ended March 31,
1996 and 1995 and for the six months
ended March 31, 1996 and 1995
Notes to Financial Statements
ITEM 2. Management's Discussion and Analysis
PART II - OTHER INFORMATION
ITEMS 1 through 6.
Signature
<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, September 30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalent $ 432,000 $ 767,000
Receivables 610,000 105,000
Inventories 47,000 70,000
Prepaid expenses and other 189,000 233,000
Total current assets 1,278,000 1,175,000
PROPERTY AND EQUIPMENT, at cost:
Land and building 2,534,000 2,574,000
Leasehold improvements 2,936,000 2,763,000
Fixtures and equipment 3,181,000 3,118,000
8,651,000 8,455,000
Less accumulated depreciation
and amortization (1,609,000) (1,305,000)
7,042,000 7,150,000
OTHER ASSETS:
Assets held for sale -0- 61,000
Note Receivables 738,000 744,000
Deposits & Other 120,000 155,000
858,000 960,000
TOTAL ASSETS $9,178,000 $9,285,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt $ 616,000 $ 298,000
Accounts payable 449,000 611,000
Accrued liabilities 738,000 1,061,000
Total current liabilities 1,803,000 1,970,000
LONG-TERM DEBT,
net of current maturities 870,000 378,000
DEFERRED LIABILITIES 360,000 216,000
MINORITY INTERESTS IN PARTNERSHIPS 2,012,000 1,735,000
<PAGE>
March 31, September 30,
1996 1995
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value;
50,000,000 shares authorized,
6,314,824 shares issued and
outstanding as of March 31,
1996 and 6,939,824 issued and
outstanding as of December 31,
1995 7,000 7,000
Capital contributed in excess
of par value 10,844,000 11,683,000
Note receivable - shareholders -0- (881,000)
Accumulated deficit (6,718,000) (5,823,000)
Total stockholders' equity 4,133,000 4,986,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $9,178,000 $9,285,000<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET REVENUES:
Restaurant sales, net $2,924,000 $4,798,000 $6,236,000 $9,851,000
Franchise revenues, net 34,000 24,000 54,000 80,000
Total revenues 2,958,000 4,822,000 6,290,000 9,931,000
RESTAURANT OPERATING EXPENSES:
Food & paper costs 1,122,000 1,653,000 2,357,000 3,316,000
Labor, occupancy & other 1,527,000 2,434,000 3,147,000 4,829,000
Depreciation & amortization 195,000 194,000 365,000 371,000
Total restaurant operating costs 2,844,000 4,281,000 5,869,000 8,516,000
INCOME FROM RESTAURANT OPERATIONS 114,000 541,000 421,000 1,415,000
OTHER OPERATING EXPENSES:
Selling, general & administrative expenses 644,000 919,000 1,362,000 1,676,000
Estimated operating loss from March 31, 1995
through June 30, 1995 on line of business
to be sold -0- 250,000 -0- 250,000
Loss on sale of RTC restaurant -0- 125,000 -0- 125,000
Total other operating expenses 644,000 1,294,000 1,362,000 2,051,000
INCOME (LOSS) FROM OPERATIONS (530,000) (753,000) (941,000) (636,000)
OTHER INCOME & (EXPENSES)
Minority income (expense), net 78,000 (31,000) 104,000 (100,000)
Interest, net (19,000) (15,000) (38,000) (22,000)
Other, net (10,000) (5,000) (19,000) -0-
Total other income & (expenses) 49,000 (51,000) 47,000 ($122,000)
NET INCOME (LOSS) ($481,000) ($804,000) (894,000) ($758,000)
NET INCOME (LOSS) PER SHARE ($0.07) ($0.12) ($0.13) ($0.11)
WEIGHTED AVERAGE SHARES OUTSTANDING 6,651,362 6,898,156 6,799,797 6,837,714<PAGE>
</TABLE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($481,000) ($804,000) ($894,000) ($758,000)
Depreciation and amortization 258,000 313,000 497,000 593,000
Changes in operating assets & liabilities--
(Increase) decrease in:
Prepaids & receivables (554,000) (173,000) (487,000) (283,000)
Inventories 28,000 25,000 23,000 (25,000)
Other assets (83,000) (236,000) (410,000) (139,000)
Opening expenses -0- (46,000) (70,000) (150,000)
(Decrease) increase in:
Accounts payable (26,000) (134,000) (164,000) (226,000)
Accrued interest -0- -0- -0- (12,000)
Accrued property taxes 17,000 26,000 59,000 71,000
Accrued payroll & P/R taxes (21,000) (20,000) (47,000) 6,000
Deposits -0- -0- -0- -0-
Other accrued liabilities/deferred income 202,000 892,000 (22,000) 984,000
Net cash provided by (used in)
operating activity (660,000) (207,000) (1,515,000) 61,000
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale - FF&E, land, building
& improvements 259,000 896,000 (220,000) 800,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt incurred (paid) 218,000 (352,000) 832,000 (339,000)
Minority interest 202,000 197,000 526,000 (4,000)
Paid in capital activity -0- -0- 41,000 26,000
Net cash provided by (used in) 420,000 (155,000) 1,399,000 (317,000)
financing activities
INCREASE (DECREASE) IN CASH $ 19,000 $ 534,000 ($336,000) $ 544,000<PAGE>
</TABLE>
1. UNAUDITED FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all of the normal recurring
adjustments necessary to present fairly the financial position of the
Company as of March 31, 1996, the results of its operations and its cash
flow for the three month period ended March 31, 1996 and for the six month
period ended March 31, 1996. Operating results for the three month period
ended March 31, 1996 and for the six month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the
year ending September 30, 1996.
The consolidated balance sheet as of September 30, 1995 is derived
from the audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. As a
result, these financial statements should be read in conjunction with the
Company's Form 10-KSB/A for the fiscal year ended September 30, 1995.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE COMPANY
General
On July 27, 1992, the stockholders of Good Times Restaurants Inc. (the
"Company") approved a merger with Round The Corner Restaurants, Inc. ("RTC").
For financial statement purposes, RTC was considered the acquiring company and
the transaction was treated as a purchase by RTC of the Company, effective
August 1, 1992. For legal purposes, however, the Company remained the surviving
entity and the combined entity retained the Company's capital structure.
In February 1993, the Company's operations and management were reorganized
to allow Good Times Drive Thru Inc. ("Drive Thru") and RTC to function as
separately accountable entities and to allow RTC's and Drive Thru's managements
to focus exclusively on their respective businesses. The Company provided
administrative and accounting support to Drive Thru and RTC in fiscal 1995 and
charged monthly management fees of $70,000 and $35,000, respectively, for such
services. On September 29, 1995, the Company completed the sale of RTC to Hot
Concepts Management Group, L.L.C. and ceased providing these services to RTC.
The Company does not anticipate a material reduction in its general and
administrative expenses due to the sale of RTC. However, the Company is able to
provide management services to Drive Thru without increasing general and
administrative expenses in spite of the increase in the number of Drive Thru
units. Management has begun to aggressively reduce general and administrative
expenses reflecting its operation as a one market company. Beginning in fiscal
1996, the administrative and accounting functions of the Company will be
consolidated with Drive Thru's operations and no management fees will be charged
to Drive Thru.
The following presents certain historical financial information of the
operations of the Company. This financial information includes the combined
operations of the Company, Drive Thru, and RTC for the three month period and
six month period ended March 31, 1995 and the results of the Company and Drive
Thru for the three month period and six month period ended March 31, 1996.
Results of Operations
Net Revenues. Net revenues for the three months ended March 31, 1996,
decreased $1,864,000 (39%) to $2,958,000 from $4,822,000 for the same prior year
period. This decrease is attributable to the sale of RTC in fiscal 1995 and the
elimination of RTC's results from the Company's consolidated financial results.
In the three month period ended March 31, 1995, RTC had net revenues of
$1,613,000. There was a decrease of $251,000 (7.8%)in net revenue of Drive Thru
to $2,958,000 for the three months ended March 31, 1996 from $3,209,000 for the
same prior year period. The Company's additional revenues from Good Times units
not open for the full prior year period were significantly offset by a decline
in same store sales for company-owned and joint-venture Drive Thru units of
approximately $390,000 (17.1%) for the three month period ended March 31, 1996
from the comparable prior year period. January 1996 revenues were adversely
impacted by severe weather and aggressive price discounting by the major
hamburger chains and the prior year period was the highest revenue per store
period in the Company's history. Drive Thru had twenty-six units open at the
end of the period of which eight were franchised units, ten joint venture units
and eight wholly-owned units compared to twenty units open at the end of the
prior year period of which five were franchised units, seven joint-venture units
and eight wholly-owned units. (One company-owned Good Times unit was sold to
franchisees in each of March, 1995 and February, 1996 and are included in the
total of company-owned stores for the prior year period.)
Franchise revenue increased $10,000 for the three months ended march 31,
1996 due to an increase in franchise fee income over the same prior year period.
Net revenues for the six months ended March 31, 1996 decreased $3,641,000
(36.7%) to $6,290,000 from $9,931,000 for the same prior year period. The
decrease is attributable to $3,563,000 from the sale of RTC in fiscal 1995 and
the sale of two Good Times restaurants to franchisees that generated $594,000 in
revenues in fiscal 1995. Same store sales for Company operated restaurants open
for the full six month periods in 1995 and 1996 decreased $740,000 or 15.4%.
Franchise revenue decreased $26,000 in the six months ended March 31, 1996 from
the same prior year period due to lower franchise and development fees from new
stores. The Company opened two new Drive Thru units in the six months ended
March 31, 1996.
Food and Paper Costs. Food and paper costs were 38.4% of net restaurant
sales for Drive Thru for the three months ended March 31, 1996, compared to
37.3% for the prior year period. The increase in food and paper costs is
attributed to an increase in discounting of Drive Thru's products that was
made necessary in order to remain price competitive with Drive Thru's major
competition. McDonald's, Burger King, and Wendy's have significantly increased
their promotions of special, limited- time discounts on popular hamburger items
such as "Big Macs", "Quarter Pounders", "Whoppers", and combo meals featuring a
hamburger item, french fries and drink. In response, Drive Thru has increased
the size of its regular french fries and offered a larger drink in its combo
meals while raising prices nominally. Whereas management believes that this
change provides the customer with a better value than its competitors'
offerings, such change has resulted in higher food costs on a net sales basis.
Management anticipates a slight decrease in discounted sales for the
remainder of the fiscal year due to seasonal promotions and less discounting.
Food and paper costs increased to 37.8% of net restaurant sales for the six
months ended March 31, 1996 for Drive Thru compared to 36.3% for the same prior
year period. The increase is attributable to higher levels of promotional sales
and discounting in response to competitive "price wars" and higher seasonal
promotion.
Income From Restaurant Operations. For the three months ended March 31,
1996, income from restaurant operations decreased to $114,000 from $541,000 for
the same prior year period. Of the prior year amount, $487,000 was attributable
to income from restaurant operations of Drive Thru and $54,000 was attributable
to the income from operations of RTC. Drive Thru experienced a decrease of
$373,000 in income from restaurant operations as a result of declining store
sales and increased labor costs. Drive Thru's labor costs as a percentage of
net restaurant sales increased to 35.8% in the three months ended March 31, 1996
from 29.2% of net restaurant sales in the same prior year period, reflecting
higher discounting, lower per store sales, and an increase in average hourly
wages due to a very competitive labor market. Labor costs as a percentage of
restaurant sales are expected to decrease in the remainder of the fiscal year
from higher average sales per store due to seasonality and from recent changes
in the amount of wages and salaries allocated per store.
For the six months ended March 31, 1996, income from restaurant operations
decreased to $421,000 from $1,415,000 for the same prior year period. Of the
prior year amount, $267,000 was attributable to RTC. The decrease in income
from restaurant operations of Drive Thru is attributable to lower average sales
per restaurant and higher labor costs as a percentage of revenues.
Income (Losses) From Operations. The Company had a loss from operations
of ($530,000) in the three months ended March 31, 1996 compared to a loss from
operations of ($753,000) for the three months ended March 31, 1995. Of the
prior year amount, loss from operations at Drive Thru was ($245,000) for the
three months ended March 31, 1995 and RTC's loss from operations was ($508,000).
The losses from operations are primarily a result of Drive Thru's
significantly lower income from restaurant operations (3.9% of net restaurant
sales) compared to the prior year period (15.3% of net restaurant sales).
Selling, general and administrative expenses decreased $275,000 for the three
months ended March 31, 1996 compared to the same prior year period due to
reductions in administrative expenses and staff reductions.
For the six months ended March 31, 1996, losses from operations increased
to ($941,000) from ($636,000) in the same prior year period. Of the prior year
amount, ($465,000) was attributable to RTC and ($171,000) was attributable to
Drive Thru. The increased loss at Drive Thru for the six months ended March 31,
1996 is attributable to lower average sales per restaurant and higher labor
costs compared to the prior year period.
Net Income (Loss). The net loss for the Company was ($481,000) for the
three months ended March 31, 1996 compared to a net loss for the Company of
($804,000) for the comparable prior year period. The net loss for the Company
for the three months ended March 31, 1995 included a net loss of ($257,000) for
Drive Thru and RTC's net loss of ($547,000). Minority interest expense
decreased $109,000 in the three months ended March 31, 1996 from the same prior
year period, attributable to the limited partners' share of restaurant operating
losses.
For the six month period ended March 31, 1996, the net loss increased
$136,000 to ($894,000) from ($758,000) in the same prior year period. Of the
prior year loss, ($543,000) was attributable to RTC and ($215,000) was
attributable to Drive Thru. Minority interest expense decreased $204,000 in the
six months ended March 31, 1996 from the same prior year period.
Liquidity and Capital Resources
As of March 31, 1996, the Company and Drive Thru had $432,000 cash and
marketable securities on hand. The Company had a combined working capital
deficit of ($525,000) including $616,000 of current maturities of long-term
debt. Because restaurant sales are collected in cash and accounts payable for
food and paper products are paid two to four weeks later, restaurant companies
often operate with working capital deficits. Included in current assets are
receivables of $610,000 of which $400,000 is from the sale of a restaurant to a
franchisee, due April 30, 1996 and $150,000 is due from a joint venture partner
in a restaurant and is expected to be received in June, 1996. The Company and
Drive Thru's cash position increased $19,000 for the three-month period ended
March 31, 1996.
Approximately $245,000 of the current maturities of long-term debt is
attributable to the short-term prepayment of a capital lease obligation to
Capital Associates International, Inc. ("Capital Associates"). In 1995, Drive
Thru entered into an equipment lease line of credit in the amount of $2 million
with Capital Associates, of which it has utilized approximately $550,000 as of
March 31, 1996. The line of credit required the Company and Drive Thru to
maintain certain financial and operating criteria. One such requirement is that
the Company and Drive Thru each maintain a net worth of at least $5.5 million.
As a result of the losses incurred by the Company and Drive Thru in fiscal 1995,
the Company and Drive Thru are in violation of that requirement and the Lessor
has declared a technical event of default to have occurred. The Company is
current on all payments to Capital Associates and negotiated the restructuring
of this obligation to include the prepayment of one of the leases on April 30,
1996 and is no longer in technical default of the lease agreement.
During the three months ended March 31, 1996, the Company sold one
restaurant to a franchisee for $480,000 and received $100,000 in cash. The
Company also entered into a $250,000 loan payable in full on March 7, 1997
unless the loan is converted into preferred common stock of the Company under an
agreement currently being negotiated. Cash flows from investing activities
reflect the sale of one restaurant's net assets of $378,000 and the purchase of
restaurant assets of $119,000. Minority interest increased $202,000 from the
development of one additional joint venture restaurant during the three month
period.
For the six months ended March 31, 1996, cash decreased $336,000. Cash
used in operations was $1,515,000, cash used in investing activities was
$220,000, and cash provided by financing was $1,399,000. The Company used all
cash in investing activities for capital expenditures consisting primarily of
expenditures for the development of new Good Times restaurants. The Company
expects that capital expenditures will decrease in the future as additional Good
Times restaurants are developed by franchisees. No new Drive Thru units are
currently under construction. The Company expects an additional three
franchised units to be opened by December 31, 1996.
The Company entered into an agreement to lease or sell up to four under-
performing restaurants to Steakout, King of Steaks, Inc. (see Item 5). The
disposition of these restaurants is expected to increase cash flow from
operations. The Company is also negotiating the sale of one joint-venture Drive
Thru unit to a franchisee, which will provide additional cash from investing
activities. Management does not anticipate the need for additional working
capital for the remainder of the fiscal year and anticipates increasing its
cash reserves.
Neither the Company nor Drive Thru have any bank lines of credit.
Impact of Inflation
Drive Thru has not experienced a significant impact from inflation. It is
anticipated any operating expense increases will be recovered by increasing menu
prices to the extent that is prudent considering competition.
Seasonality
Revenues of Drive Thru are subject to seasonal fluctuation based primarily
on weather conditions adversely affecting restaurant sales in January, February
and March.
<PAGE>
GOOD TIMES RESTAURANTS, INC. & SUBSIDIARIES
Part II. - Other Information
Item 1, 3 & 4. Not Applicable.
Item 2. Change in Securities
On February 19, 1996 common shares outstanding decreased from the
termination of Tom Gordon as Chief Financial Officer and
cancellation of the Stock Purchase Agreement covering 212,500
shares of common stock. On February 19, 1996 the Board of
Directors unanimously voted to cancel the Stock Purchase
Agreements the Company entered into with Boyd Hoback and Robert
Turrill covering 412,500 shares of common stock. The Stock
Purchase Agreements have previously been filed on Form 8-K.
Item 5. (a) The Company entered into a transaction on March 29, 1996
whereby it agreed to lease two initial restaurants to
Steakout, King of Steaks Restaurants, Inc.("Steakout") for
cash and ongoing rental payments. Depending upon certain
sales performance criteria, Steakout has the option to
acquire two additional Good Times restaurants. Steakout and
its franchisees previously sub-leased four restaurants from
Good Times in Las Vegas, Nevada and converted them to the
Steakout format. Pursuant to the terms of the agreement,
the Company has the right to reacquire the restaurants as
a franchisee of Steakout and acquire the development
rights for the Steakout concept for Colorado and Idaho or
to sell the restaurants to Steakout for the net book value
under a promissory note.
(b) In February, 1996 the Company terminated Tom Gordon, its
Chief Financial Officer, Treasurer and Secretary, and
accepted his resignation from the Board of Directors,
effective immediately. 115,000 incentive stock options
expire 90 days after his termination.
Susan Knutson, the Company's Controller, was elected
Secretary/Treasurer.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit A: Letter Agreement between Good Times Restaurants
Inc. and Steakout, King of Steaks Restaurants, Inc.
(b) No Reports on Form 8-K.<PAGE>
SIGNATURE
Pursuant to the requirements of The Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOOD TIMES RESTAURANTS INC.
DATE: May 14, 1996 BY: /s/ Boyd E. Hoback, President &
Chief Financial Officer
Boyd E. Hoback, President
& Chief Executive Officer
BY: /s/ Susan Knutson, Controller
Susan Knutson, Controller
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000825324
<NAME> ROBIN BOEFF
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 432000
<SECURITIES> 0
<RECEIVABLES> 610000
<ALLOWANCES> 0
<INVENTORY> 47000
<CURRENT-ASSETS> 1278000
<PP&E> 8651000
<DEPRECIATION> (1609000)
<TOTAL-ASSETS> 9178000
<CURRENT-LIABILITIES> 1803000
<BONDS> 0
<COMMON> 7000
0
0
<OTHER-SE> 4126000
<TOTAL-LIABILITY-AND-EQUITY> 9178000
<SALES> 6236000
<TOTAL-REVENUES> 6290000
<CGS> 2357000
<TOTAL-COSTS> 5869000
<OTHER-EXPENSES> 1362000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (38000)
<INCOME-PRETAX> (894000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (894000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
March 29, 1996
Steakout, King of Steaks Restaurants, Inc.
Attention: Gary Schwalb, President
1800 Camino Monte Sol
North Las Vegas, Nevada 89031
Gentlemen:
This letter will set forth our agreement with respect to
the conversion of certain Good Times Drive Thru restaurants into
Steakout restaurants and related matters. For convenience we shall
refer to Steakout, King of Steaks Restaurants, Inc. as "Steakout"
and to Good Times Restaurants Inc. and its subsidiary, Good Times
Drive Thru Inc., together as "Good Times."
1. Good Times shall lease and sublease to Steakout the
following Good Times restaurants located in the Denver, Colorado
metropolitan area (the "Initial Restaurants") pursuant to the terms
and conditions of Leases and Subleases in the form attached hereto
as Exhibit A:
#105 - 41st & Wadsworth
#118 - 22nd & Sheridan
The consideration due from Steakout to Good Times for the lease and
sublease of the Initial Restaurants shall be $50,000 payable in
increments of $25,000 each due upon Steakout taking possession of
an Initial Restaurant. Such taking of possession shall occur with
respect to each of the Initial Restaurants at such time as the
master lessor thereof has consented to the sublease and a building
permit has been obtained therefor by Steakout, but in no event
later than April 15, 1996. Steakout and Good Times acknowledge
that Steakout has deposited in escrow with Cohen Brame & Smith
Professional Corporation such $50,000 and Steakout and Good Times
shall jointly instruct Cohen Brame & Smith to make such payments as
set forth above.
2. Following the taking of possession of the Initial
Restaurants, Steakout shall as rapidly as practicable cause the
Initial Restaurants to be converted into Steakout restaurants
involving a physical format substantially similar to the Steakout
restaurants existing on the date of this letter agreement in Las
Vegas, Nevada. The lease and sublease of the Initial Restaurants
shall include all of the property thereof other than with respect
to each of the Initial Restaurants (i) inventories, replenishable
smallwares and cash banks, (ii) two cash registers, (iii) the
center island make-up tables, (iv) shake machines, bun toasters and
any other equipment not used in the normal operation of a Steakout
restaurant and (v) Good Times signage that in Good Times'
reasonable judgment cannot practicably be resurfaced and reused by
Steakout. In connection with such conversion, Steakout shall also
have the right to convert the existing Good Times passenger side
drive-thru lanes into paved patios.
3. The subleases of the Initial Restaurants shall
require Steakout, from and after its taking possession of each of
the Initial Restaurants, to discharge in full and when due all
obligations of Good Times under the master leases therefor. As
additional consideration for the leases subleases, Steakout shall
pay to Good Times six percent of the gross revenues of the Initial
Restaurants. Such amounts shall be paid to Good Times on a monthly
basis, and notwithstanding the foregoing, the payment each month
with respect to each Initial Restaurant, commencing with the
fifteenth day following its possession by Steakout, shall in no
event be less than $2,500 or more than $3,300.
4. Good Times shall have the option to terminate the
leases and subleases for the Initial Restaurants and to purchase
from Steakout the assets thereof, which option may be exercised by
Good Times by notice to Steakout given on or before 120 days after
the opening of the second Initial Restaurant as a Steakout
restaurant and which lease and sublease terminations and purchases
shall be effective thirty days after such notice. The purchase
price of the Initial Restaurants payable by Good Times to Steakout,
due upon the effective date of such purchase, shall be $50,000 plus
an amount equal to (i) all out-of-pocket expenses incurred by
Steakout with third parties in converting the buildings and
equipment of the Initial Restaurants from Good Times Drive Thru
restaurants to Steakout restaurants and (ii) customary capitalized
pre-opening expenses incurred by Steakout for the Initial
Restaurants which expenses shall therefore exclude expenses
incurred for Steakout employees.
5. The option of Good Times to purchase the Initial
Restaurants shall not be transferable and if not exercised by Good
Times, shall be exercisable only by Boyd E. Hoback ("Hoback"), the
present President and Chief Executive Officer of Good Times, in
view of Steakout's confidence in Hoback's operations capability.
6. Upon exercise of the above described option to
purchase the Initial Restaurants, Good Times (or Hoback) shall
become the exclusive Steakout area franchisee for Colorado and
Boise, Idaho, including within such exclusive rights the right to
subfranchise. Good Times (or Hoback) shall pay an initial fee with
respect to each purchased Initial Restaurant of $20,000 due upon
the effective date of such purchase. Upon such purchase Steakout
and Good Times (or Hoback) shall enter into a development agreement
containing the development schedule and providing for additional
initial fees as set forth on Exhibit B hereto and a franchise
agreement, which franchise agreement shall require the payment of
weekly royalty fees as set forth on Exhibit B hereto, and which
development and franchise agreements shall contain other customary
terms and conditions approved by Steakout and Good Times (or
Hoback), which approvals shall not be unreasonably withheld. If
Steakout and Good Times (or Hoback) cannot agree on such other
customary terms and conditions, they shall be determined by
arbitration in Denver, Colorado. Such arbitration shall be
accomplished by Good Times (or Hoback) and Steakout each
designating a restauranteur which designees shall then jointly
designate a third independent restauranteur and such third
independent restauranteur, whose fees shall be paid equally by
Steakout and Good Times (or Hoback), shall determine such other
customary terms and conditions.
7. Prior to the exercise or the lapse of Good Times'
(or Hoback's) purchase option set forth in paragraph 4 or, if
later, until September 30, 1996, Good Times shall provide to
Steakout leased restaurant personnel and accounting services for
the Initial Restaurants. Such services shall not however include
personnel utilized for special opening teams which personnel shall
be provided and paid for by Steakout. The accounting services
shall consist of monthly operations financial statements of the
same nature as Good Times provides for its own restaurants.
Steakout shall utilize such leased employees pursuant to employment
practices approved by Good Times, which approval shall not be
unreasonably withheld, and Steakout shall indemnify and hold Good
Times harmless with respect to any claims arising out of the use of
such leased employees. As compensation for such services Steakout
shall (i) reimburse Good Times for its out-of-pocket costs for all
such leased employees and (ii) pay Good Times $500 per month for
each Initial Restaurant. If Good Times (or Hoback) has not
exercised its option under paragraph 4 (or 5), Good Times shall
thereafter at Steakout's request provide until September 30, 1996
complete management services for the Initial Restaurants and shall
receive as additional compensation therefor two percent of the
gross revenues of the Initial Restaurants during the period of such
complete services. Steakout shall make such reimbursements and
payments to Good Times on a weekly basis together with
reimbursement of any other expenses incurred by Good Times on
behalf of Steakout in connection with such services. To ensure the
making of such reimbursements and payments, Steakout shall at all
times provide to, and maintain with, Good Times a cash reserve fund
equal to the estimate from time to time of Good Times of such
reimbursements and payments to be due from Steakout for payroll and
payroll taxes during each succeeding two week period. The
foregoing complete management services provisions shall be embodied
in a management services agreement as set forth in Exhibit C
hereto.
8. Prior to the exercise or lapse of Good Times' (or
Hoback's) option to purchase the Initial Restaurants but after the
conversion thereof to Steakouts, Steakout shall have the option at
any time upon thirty days notice to terminate the leases and
subleases and the complete management services agreement and to
transfer ownership of the Initial Restaurants to Good Times without
any payment obligation therefor by Good Times. Thereafter, Good
Times may elect to operate the Initial Restaurants as Steakout
restaurants for one year without any initial franchise fee or
weekly royalty fees after which weekly royalty fees shall be
payable as set forth on Exhibit B.
9. Provided that (i) the aggregate gross revenues of
the Initial Restaurants as Steakout restaurants have averaged
$14,000 per week per Initial Restaurant, exclusive of revenues
during the first one week of operation of each Initial Restaurant,
(ii) the average gross revenues of each Initial Restaurant have
been at least $10,000 exclusive of such first week, and
(iii) Steakout has not exercised its option under paragraph 8,
Steakout may elect to sublease the following two additional Good
Times restaurants:
#109 - Monaco & Evans
#127 - 92nd & Wadsworth
Notwithstanding the foregoing, if Good Times has not at the time of
the exercise of such election completed the sale of its restaurant
in Broomfield, Good Times may elect to substitute for restaurant
#109 another Good Times restaurant in the Denver Metropolitan area
which other restaurant shall be selected by Good Times as being of
generally equivalent potential value as restaurant #109 and which
selection shall be subject to the approval of Steakout, which
approval shall not be unreasonably withheld.
10. The election of Steakout set forth in paragraph 9
shall be made or lapse thirty days after the opening of both of the
Initial Restaurants as Steakout restaurants except that if the
revenues of the Initial Restaurants have not at such time met the
requirements set forth in paragraph 9, Steakout may extend the
period of such election for up to an additional four weeks in order
to endeavor to meet such requirements. Upon such election:
(i) leases and subleases shall be entered into for
such additional restaurants in the form
attached hereto as Exhibit A; and
(ii) Steakout shall pay Good Times $50,000.
Such additional restaurants shall thereafter become Initial
Restaurants for all purposes of this letter agreement except that
(i) the option of Good Times (or Hoback) to terminate the leases
and subleases and to purchase the assets of the Initial Restaurants
under paragraph 4 shall be exercisable on or before the elapse of
ninety days after the opening of the fourth Initial Restaurant as
a Steakout restaurant and the $50,000 purchase price set forth in
paragraph 4 shall become $100,000, and (ii) the option of Steakout
to terminate the subleases under paragraph 8 shall not apply to any
of the Initial Restaurants. Upon exercise of such option by Good
Times (or Hoback) payment with respect to restaurants #105 and #118
shall be due thirty days thereafter and with respect to the other
two Initial Restaurants shall be due ninety days thereafter.
11. Notwithstanding the provisions set forth above, if
Steakout has elected to lease and sublease four Initial Restaurants
and if Good Times has exercised its option to purchase the Initial
Restaurants, Good Times may also, with the concurrence of Steakout,
elect to postpone the effective date of its purchase of two of the
Initial Restaurants designated by it for one year. Moreover,
notwithstanding the exercise of Good Times' option to terminate the
sublease and purchase the Initial Restaurants, Good Times shall not
be obligated to purchase such designated Initial Restaurants if
Steakout has concurred with the above described postponement and if
in the period from the commencement of the subleases therefor up to
the scheduled effective date of the purchase thereof the average
weekly gross revenues of such Initial Restaurants are less than
$14,000 per Initial Restaurant. During the period of such
postponed purchase, Good Times shall provide for such two Initial
Restaurants all of the services described in paragraph 7 and shall
receive all of the compensation described in such paragraph.
12. In the event that neither Good Times (nor Hoback)
exercises its option to purchase the Initial Restaurants, and
Steakout does not exercise its option under paragraph 8 above, upon
the lapse of such options, the subleases for the Initial
Restaurants shall terminate and (i) Good Times shall assign the
master leases for the Initial Restaurants to Steakout and
(ii) Steakout shall reimburse Good Times for the amount of its net
book value of the Initial Restaurants, exclusive of Initial
Restaurant #105, as shown on the regular accounting records of Good
Times as of the last day of the month preceding the lapse of the
option of Good Times (and Hoback) after first subtracting from such
reimbursement the $50,000 (or $100,000 under paragraph 10) paid by
Steakout to Good Times under paragraph 1 above. The reimbursement
by Steakout under subpart (ii) above shall be in the form of the
promissory note of Steakout secured by the assets of the Initial
Restaurants, which note shall accrue interest at the rate of seven
percent per annum and with all interest and principal due on or
before the elapse of ten years after the date of this letter
agreement. Steakout shall make payments on such promissory note
equal to six percent of the gross revenues of the Initial
Restaurants, payable on or before the 15th day of each month with
respect to revenues of the prior month. Notwithstanding the
foregoing, in no event shall such payments be less than $30,000 or
more than $40,000 with respect to each of the Initial Restaurants
during each 12 month period of such promissory note. The form of
such promissory note shall be as attached hereto as Exhibit D. Any
default by Steakout under the leases for the Initial Restaurants
assigned by Good Times to Steakout or under this letter agreement
shall constitute a default under such promissory note. In the
event that there are four Initial Restaurants, their purchase
price shall be the net book value of Good Times therein, including
in Initial Restaurant #105. In the event that there are two
Initial Restaurants, with respect to Initial Restaurant #105,
Steakout shall pay to Good Times six percent of its gross revenues
for a period of five years after the termination of its sublease
also payable on or before the 15th day of each month with respect
to the revenues of the prior month. The obligation to make such
payments shall also be secured by the assets of the Initial
Restaurants. The net book value of the Initial Restaurants as of
the date hereof is as shown on Exhibit E hereto. Following the
assignment of the master leases for the Initial Restaurants from
Good Times to Steakout and so long as Good Times remains obligated
under any of such master leases, Steakout shall not assign,
sublease or otherwise transfer its interest in the leases for which
Good Times remains obligated without the prior written approval of
Good Times, which approval shall not be unreasonably withheld. In
determining the reasonableness of a withholding of approval thereof
by Good Times, it shall be reasonable for Good Times to consider,
among other factors, the net worth and operating experience of the
proposed transferee from Steakout.
13. In the event that Steakout develops any additional
Steakout restaurants in excess of the Initial Restaurants prior to
the exercise or lapse of Good Times' (or Hoback's) purchase option,
such additional restaurants shall be subject to such purchase
options pursuant to paragraphs 4 and 5 above and to the management
provisions of paragraphs 7 and 11. Such purchase options shall be
exercisable on or before 120 days after the opening of all of such
restaurants and payment therefor shall be due ninety days after
exercise of such options.
14. To assist Steakout in the development of its
operating systems and operating procedures, Good Times shall
provide without charge to Steakout (except for reimbursement of any
Good Times out-of-pocket expenses) the use of its franchise
documents, training manuals, operations manuals and accounting and
administrative systems. Good Times shall also make available to
Steakout without charge Good Times personnel for consultation on
such items to a reasonable extent which in Good Times' discretion
does not interfere with the employment duties of such personnel to
Good Times. Steakout shall maintain the confidentiality of such
information and shall recognize the proprietary rights of Good
Times thereto and the foregoing shall be embodied in such
confidentiality and proprietary rights agreements as Good Times may
reasonably request. Good Times shall also maintain the
confidentiality of and recognize the proprietary rights of
Steakout's systems.
15. Until the promissory note provided for in
paragraph 12 has been paid in full and for so long as Good Times is
contingently liable on the leases for the Initial Restaurants, or
until Good Times (or Hoback) reacquires the Initial Restaurants,
Steakout shall be the entity receiving all franchise fees and
royalties with respect to all franchised Steakout restaurants
wherever located and shall neither liquidate nor make any
extraordinary distributions to its shareholders.
16. Whenever any payments are due Good Times from
Steakout based upon gross revenues (i) there shall first be
deducted from such revenues any sales and similar excise taxes
payable; (ii) each payment shall be accompanied by a certification
as its correctness from the chief financial officer or other
executive officer of Steakout, and (iii) Good Times and its agents
shall have right upon reasonable notice and at reasonable intervals
to inspect the books and records of Steakout to verify the
correctness of such payments. If any such payment is understated,
Steakout shall reimburse Good Times for the cost of such inspection
and such understatement shall be immediately payable together with
interest thereon of 18 percent per annum. Any late payment shall
also be subject to a late fee of $500.
17. Any dispute under this letter agreement, except as
otherwise expressly set forth, shall be resolved by arbitration in
Denver, Colorado pursuant to procedures the parties agree upon and
in the absence of any such agreement, pursuant to the rules and
procedures of the American Arbitration Association.
If this letter correctly sets forth our agreement, please
sign and return the attached copy hereof.
Very truly yours,
GOOD TIMES RESTAURANTS INC.
By: /s/ Boyd E. Hoback, President
President
Accepted and agreed to this
1st day of April, 1996
STEAKOUT, KING OF STEAKS RESTAURANTS, INC.
By: /s/ Gary Schwalb
