SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number: 0-18590
GOOD TIMES RESTAURANTS INC.
(Exact name of small business issuer in its charter)
Nevada 84-1133368
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
8620 Wolff Court, Suite 330, Westminster 80030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 427-4221
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Common Stock Purchase Warrants
(Title of class)
Indicate by check 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. Yes X No
Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-KSB is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
Registrant's revenues for the most recent fiscal year were $11,865,000.
As of December 17, 1997, the aggregate market value of voting stock held by
non-affiliates was $2,361,093.
As of December 17, 1997, the Registrant had 6,434,849 shares of common stock
outstanding.
Documents Incorporated by Reference:
Incorporated herein by reference are Part III, Items 9 through 12 to the
Registrant's definitive proxy statement to be issued in conjunction with
Registrant's Annual Meeting of Shareholders to ben held on February 12, 1998.
Transitional Small Business Disclosure Format Yes No X <PAGE>
PART I
ITEM 1. BUSINESS
Background
Good Times Restaurants Inc. (the "Company") was organized under Nevada law
in 1987 and is the holding company for a wholly-owned subsidiary that is engaged
in the business of developing, owning, operating and franchising restaurants
under the name Good Times Drive Thru BurgersSM. Good Times Drive Thru BurgersSM
restaurants are owned, operated and franchised by the Company's subsidiary, Good
Times Drive Thru Inc. (Good Times Drive Thru BurgersSM and Good Times Drive Thru
Inc. are interchangeably referred to herein as "Good Times" or "Drive Thru").
Round The Corner restaurants are owned and operated by the Company's former
subsidiary, Round The Corner Restaurants, Inc. (Round The Corner and Round The
Corner Restaurants, Inc. are interchangeably referred to herein as "RTC"). With
RTC's restaurant sales significantly declining in 1994 and 1995 and RTC
incurring significant losses, the Company divested itself of RTC and focused
all of its resources on development of the Good Times concept. On September 30,
1995, the Company sold 100% of the stock of RTC to Hot Concepts Management
Group, L.L.C. ("Hot Concepts").
Corporate Operations
The Company currently leases approximately 5,600 square feet of space for
its executive offices in Westminster, Colorado for $74,000 per year. The lease
is for a five year period expiring in April 1998. Thereafter, the Company will
lease office space from The Bailey Company (holders of the Preferred Stock of
the Company) at their corporate headquarters. It is anticipated that the lease
will reduce the Company's expenses related to its office lease. Through fiscal
1995, the Company provided administrative and accounting support to Drive Thru
and RTC and charged monthly management fees for such services. With the sale of
RTC, the Company no longer provides such services to RTC and has consolidated
its operations with Drive Thru.
The Company is a holding company and its officers are the President and
Chief Executive Officer of the Company and the Controller, Secretary and
Treasurer. Officers of the Company hold the same position with Drive Thru and
all personnel associated with the Company are employees of Drive Thru.
For 1998, Drive Thru plans to concentrate its efforts and capital on the
growth of the Good Times restaurant chain in Colorado through additional
company-owned, joint-venture and franchised restaurants.
Good Times
Good Times Drive Thru Inc. is engaged in the operation and development of
the Good Times Drive Thru BurgersSM restaurants, featuring extremely fast
service and a limited, high quality menu for drive-through and walk-up
customers. During fiscal 1997, three restaurants were developed featuring a
lobby with interior seating. Drive Thru currently operates and franchises
twenty-seven Good Times restaurants in the State of Colorado, of which twenty-
two are located in metropolitan Denver, one in Boulder, one in Longmont, one
in Grand Junction, one in Ft. Collins and one in Greeley. There is one
franchised Good Times restaurant in Boise, Idaho. Eight of the restaurants are
company-owned and pursuant to the co-development provisions in its development
agreements with two Drive Thru co-development partners, nine of these
restaurants in Colorado are owned jointly with such co-development partners.
Eleven Good Times restaurants are franchised restaurants with six operating in
the Denver metropolitan area, one in Silverthorne, Colorado, one in Grand
Junction, Colorado, one in Greeley, Colorado, one in Longmont, Colorado and one
in Boise, Idaho. Good Times is offering franchises for the development of
additional Good Times restaurants.
In fiscal 1996, Drive Thru focused on the disposition or relocation of
under-performing restaurants, reductions in corporate overhead and solidifying
its working capital position and franchise partners for continued development of
the Colorado market.
In fiscal 1997, Drive Thru developed one new franchised restaurant and two
new joint-venture restaurants and began construction on the conversion of an
existing double drive thru restaurant to one with a dining room and 48 seats.
The franchised restaurant was developed as a part of an Amoco gas and
convenience store development, comprising 2,000 sq. ft. of restaurant space and
a dining room with drive thru.
The hamburger fast food market remains intensely competitive with the major
competitors aggressively discounting menu prices, which has had an adverse
impact on Drive Thru's sales and operating profits. The Company believes it
has an advantage in providing a superior level of service, quality and overall
value based upon consumer research studies, but is limited in its ability to
effectively advertise and build awareness of its brand until "critical mass" in
restaurant sales are achieved in the Colorado market for consistent television
and radio advertising, which the Company estimates to be approximately
$30,000,000 in system-wide restaurant sales in Colorado, or 32-35 restaurants.
Beginning in September 1997, Drive Thru initiated a television advertising
campaign focused on building its brand personality, taste superiority and
general awareness and anticipates continuing the campaign throughout fiscal
1998. It is management's intent to continue to develop the concept on those
attributes important to the quick service restaurant consumer other than
price - taste, speed and overall value.
The Company's objectives for fiscal 1998 are to continue to build
additional company-owned, joint-venture and franchised restaurants in Colorado
and add indoor seating to select existing restaurants to mitigate the adverse
impact of inclement weather and to increase sales from additional quick service
restaurant consumer occasions that are centered around "sociability",
particularly among teens and families that cannot be taken advantage of with the
double drive thru format. Additionally, the Company will introduce limited new
menu offerings and advertise what it believes to be attractive price points for
its products.
Colorado is divided into two primary television markets--Denver and
Colorado Springs/Pueblo. It is the Company's intent to fully develop the Denver
market to "critical mass" and then develop the Colorado Springs market over the
next three to four years, depending on availability of financing and suitable
sites. Management estimates the Denver market will support 40-50 Good Times
restaurants and the Colorado Springs market will support 8-10 restaurants.
Drive Thru's goals in fiscal 1995 were to continue to develop the Colorado
market and to expand the Good Times concept into an out-of-state market. In the
spring of 1995, Drive Thru reached an agreement with a franchisee of four
Rally's Hamburger restaurants in Las Vegas, Nevada to acquire those four units.
It was management's intent to convert those units into Good Times restaurants
and to develop an additional six Good Times restaurants in Las Vegas over a
twelve month period. Management believed that with ten units operating in the
Las Vegas market, Good Times would have "critical mass" in the Las Vegas
television market. ("Critical mass" is defined by the Company as having a
sufficient number of restaurants in a market to advertise on television at
least 30 weeks out of the year and to take advantage of operational and
distribution economies of scale.) Drive Thru opened the first two converted
Rally's units in June 1995 and the other two restaurants in August 1995.
However, Drive Thru experienced difficulty in securing suitable locations at
reasonable cost in the Las Vegas market and suitable financing for new stores
and realized that critical mass could not be achieved within an acceptable
period of time. During the same time period, media advertising costs in Denver
increased dramatically, requiring a higher level of store penetration in
Colorado to support the Company's advertising campaign. Since four units
would continue to operate at a significant loss until Drive Thru could
effectively advertise in the Las Vegas market, it was decided to cease
operations in Las Vegas and sell the stores. The four Las Vegas units were
closed on October 31, 1995 and sold as of November 30, 1995. Drive Thru will
continue to focus its development efforts on new Colorado locations until full
penetration and critical mass is achieved.
The Concept. Good Times was initially developed as a double drive only,
limited menu concept featuring high quality products and extremely fast service,
with menu prices 30-40 percent lower than the major hamburger chains. The price
advantage once held has diminished due to continued aggressive price discounting
by the major chains.
Management has focused the development of the concept based on developing
strong differentiation in the taste of its products (with a more distinctive
taste profile), the speed of service, the overall value and a differentiated
brand personality built through its advertising and employee service methods.
While the double drive thru format performs well in select locations, it
is management's opinion that the perceived value for its products and sales
producing capacity of sites may be enhanced with the addition of small, highly
efficient dining rooms, accessing consumer occasions not available with drive
thru only.
The Company plans to develop additional restaurants with seating and a
single drive thru lane in fiscal 1998 in select locations with a new prototype
building and other conversion opportunities. Good Times' food preparation and
service systems deliver a quality meal with a faster order-delivery response
time and have the capacity to reach the same sales levels as traditional hambur-
ger chains. Typically, a customer receives an order 30 to 45 seconds after his
vehicle reaches the take-out window. The simplicity of the menu, the relatively
low capital investment, and the efficient design of the building and equipment
allow Good Times to sell its products at comparable or lower prices than the
major fast food hamburger chains. The limited menu allows maximum attention to
be devoted to food quality and speed of service.
Menu. The menu of a Good Times restaurant is limited to hamburgers,
cheeseburgers, chicken sandwiches, french fries, milkshakes and soft drinks.
Each sandwich is made to order at the time the customer places the order and is
not pre-prepared.
The hamburger patty is 4.0 ounces of 100% USDA approved beef, served on a
4-1/4 inch sesame seed bun. Hamburgers and cheeseburgers are garnished with
fresh lettuce, fresh sliced sweet red onions, mayonnaise, mustard, ketchup,
pickles and fresh sliced tomato. The cheese is 100% pure sharp American thickly
sliced. The chicken sandwiches include a spiced, battered deep-fried breast
patty and a grilled spicy breast patty, both served with mayonnaise, lettuce
and tomato. Equipment has been automated and equipped with compensating
computers to deliver a consistent product and minimize the skills required of
employees.
As of December 1, 1997, the price of the deluxe Good Times hamburger was
$1.39, the deluxe cheeseburger $1.69, the deluxe double cheeseburger $2.49, the
deluxe bacon-cheeseburger $2.19, the chicken sandwiches $2.29, the chicken club
sandwich $2.89, french fries $.89 and $1.09 and a 22-ounce soft drink $.89.
Good Times restaurants are generally open 14 to 16 hours per day, seven
days a week, for lunch, dinner and late-night snacks and meals.
The Building. The existing Good Times restaurants are less than one-third
the size of the typical restaurants of the four largest hamburger chains and
require approximately one-half the land area based upon management's experience
in the restaurant industry and research reports. The current standard Good Times
restaurant building is a double drive-through and walk-up style structure
containing approximately 880 square feet built on 18,000 to 30,000 square-foot
lots. Most existing restaurants utilize a double drive-thru concept that allows
simultaneous service from opposite sides of the restaurant and one or two
walk-up windows with a patio for outdoor eating. The Company has developed a
new 2,100 square foot prototype building with a dining room and 50 seats and a
1,000 square foot 48 seat addition for existing restaurants.
Management of Drive Thru believes that the building form, design and
aesthetic appeal address key issues and concerns of the consumer: speed,
cleanliness, security, eye appeal and low maintenance. The exterior consists
of a cream-colored dry-vit system with an enclosed glass vestibule at the front
for walk-up service and to exhibit the fast system of service. A brightly lit
multi-colored fascia band runs the length of both sides of the building in
addition to product and Good Times proprietary signage. The rest rooms and walk
- -in refrigerators are modular components of the building. The double drive thru
buildings are transportable and therefore can be moved from an unsuccessful site
to a better location. Though management does extensive site evaluation and
expects a minimum number of buildings will ever have to be moved, one under-
performing Good Times unit was relocated in 1996 and one in 1997.
Plan of Operation. The first objective of Drive Thru has been to develop
critical mass in the Denver television market (referred to as the Denver ADI
which includes Boulder, Greeley, Longmont and other communities in northern
Colorado.) In the past, Management believed that, in Denver, critical mass
required approximately 20 restaurants to be operating, which was the number of
Good Times operating in the Denver ADI when the decision was made to open the
Las Vegas Good Times restaurants. However, increased advertising by its
competitors and significant increases in the cost of advertising in Denver has
caused management to reevaluate critical mass as requiring 32 to 35 Good Times
restaurants in the Denver ADI. Good Times currently has eight company-owned,
nine franchised and nine joint-venture stores in the Denver ADI. Good Times also
has one franchised restaurant in Boise, Idaho and has one franchised restaurant
in Grand Junction, Colorado.
As of December 15, 1997, the Company operated 17 company-owned and joint-
venture Good Times restaurants and had ten franchised restaurants open in
Colorado and one in Boise, Idaho.
December 15, 1996 December 15, 1997
Company-owned restaurants 7 8
Joint venture restaurants 7 9
Franchise operated restaurants 10 11
Total restaurants 24 28
During fiscal 1997, drive Thru opened two joint-venture restaurants and one
franchised restaurant and began construction of one company-owned restaurant.
Management anticipates that Drive Thru and its existing franchisees will
develop a total of four to seven Good Times units in the Denver ADI in 1998.
Drive Thru's ongoing objective is to continue to increase average
restaurant sales through increased customer counts in each daypart
(lunch, dinner and late-night), selective menu and price promotions and
effective marketing of Good Times competitive attributes of high quality
products, quick service and overall value. The Company anticipates modest price
increases in 1998 in anticipation of higher hourly wages and to reduce cost of
sales.
Operations and Management. Good Times has defined three ingredients essen-
tial to its success: (i) consistent delivery of high quality, great tasting
products; (ii) speed of service; and (iii) value pricing. The order system at
each Good Times restaurant is equipped with an internal timing device that
displays and records the time each order takes to prepare and deliver. The total
transaction time for the delivery of food at the window is approximately 30 to
45 seconds during peak times.
Each Good Times unit employs a general manager, one to two assistant
managers and approximately 25 employees, most of whom work part-time during
three shifts. Operating systems and training materials are utilized to ensure
consistent performance to Good Times' standards. An eight to ten week training
program is utilized to train restaurant managers on all phases of the operation.
Ongoing training is provided as necessary. Management of Drive Thru believes
that incentive compensation of its restaurant managers is essential to the
success of its business. Accordingly, in addition to a salary, managerial
employees may be paid a bonus based upon proficiency in meeting financial and
performance objectives. Drive Thru provides a medical and dental insurance plan
to management with a portion of the cost contributed by the participating
employee.
Drive Thru presently purchases its products from independent food
processors and distributors and does not anticipate any difficulty in continuing
to obtain an adequate quantity of food products of acceptable quality and at
acceptable prices.
Financial and management control is maintained through the use of automated
data processing and centralized accounting and management information systems
which are provided by the Company. Restaurant managers forward sales reports,
vendor invoices, payroll data and other operating information to Drive Thru's
headquarters daily via an automated "polling" of each restaurant's point-of-sale
systems. Management receives daily, weekly and monthly reports identifying food,
labor and operating expenses and other significant indicators of restaurant
performance. Management of Drive Thru believes that such reporting requirements
enhance its ability to control and manage its operations.
Drive Thru employs a full-time Director of Human Resources whose principal
responsibility is to recruit and coordinate the training of management personnel
required for continued expansion of Good Times units in the Denver ADI.
Marketing and Advertising. Marketing activities to date have focused on
radio advertising and restaurant level promotions in the immediate trade area
around each location. Within the Denver market the ultimate objective is to
develop adequate market penetration by establishing a sufficient number of Good
Times restaurants to support competitive levels of radio and television
advertising.
The marketing efforts of Good Times focus on building "brand awareness" of
the Good Times concept within the context of ad campaigns that are "irreverent,
funny and full of surprises", combined with product and limited pricing
messages. Supported by consumer research, Drive Thru believes that it has a
better tasting product, delivered to the customer faster, at an equal or better
value than its competitors.
Signage is one of the most important elements for establishing identity at
each location. The Good Times restaurant sign package that has been developed
offers flexibility based on local codes, site layout and surrounding property.
Franchise Program. Drive Thru has prepared prototype area rights and
franchise agreements, a Uniform Franchise Offering Circular and advertising
material to be utilized in soliciting prospective franchisees. Drive Thru seeks
to attract franchisees having experience as restaurant operators, that are well-
capitalized and have demonstrated the ability to develop multi-unit franchises.
Drive Thru will carefully review sites selected for franchises and will monitor
performance of franchise units. Good Times is currently working with potential
franchisees only for development of units in Colorado.
Drive Thru estimates that it will cost a franchisee on average
approximately $475,000 to $575,000 to open a Good Times restaurant, including
pre-opening costs and working capital, assuming the land is leased. A franchisee
typically will pay a royalty of 4% of net sales, an advertising fee of at least
0.5% of net sales, plus participation in regional or national advertising up to
5% of net sales, and initial development and franchise fees aggregating $20,000
per unit. Among the services and materials which Drive Thru provides to
franchisees are site selection assistance, plans and specifications for
construction of the Good Times double drive thru restaurants, an operating
manual which includes product specifications and quality control procedures,
training, on-site pre-opening supervision and advice from time to time relating
to operation of the franchised restaurant.
Drive Thru has entered into five franchise development agreements in the
Denver ADI. Nine franchise restaurants and nine joint-venture restaurants are
operating under the development agreements for the Denver ADI. One franchise
restaurant in Grand Junction, Colorado has been open pursuant to the development
agreement for the Western Slope of Colorado. One joint-venture restaurant
opened in Boise, Idaho in 1995, and effective November 1, 1996, that restaurant
has been sold as a franchise restaurant.
In 1996, Drive Thru signed a franchise agreement and $1,000,000
Series A Convertible Preferred Stock Purchase Agreement with The Bailey Company
("TBC"), a 64 unit franchisee of Arby's (see "Bailey Preferred Stock
Investment"). It is anticipated that TBC will develop additional joint-venture
or franchise Drive Thru restaurants in 1998.
Operations to Date. The first Good Times prototype unit was opened in
Boulder, Colorado, in September 1987 and Drive Thru grew slowly to seven
restaurants by March, 1993, two of which were franchised restaurants. Thirteen
additional restaurants were developed by December 31, 1994, seven of which were
joint-ventured, two were franchised, and four were company-owned. In calendar
1995, Drive Thru opened six new restaurants, including one company-owned, two
joint-ventured and one franchised restaurants in the Denver ADI, one franchised
unit in Grand Junction, Colorado and one joint-ventured unit in Boise, Idaho.
In calendar 1996, Drive Thru opened one franchised unit, converted the Boise,
Idaho unit to a franchise and closed two under-performing restaurants. In
calendar 1997, Drive Thru opened one company-owned unit, two joint-ventured
restaurants and one franchised restaurant.
Good Times opened two restaurants in June 1995 and two restaurants in
August 1995 in Las Vegas, Nevada. These units were previously owned by a
franchisee of Rally's Hamburgers, Inc. However, Drive Thru experienced
unexpected difficulty in securing suitable locations on which it could develop
new units at reasonable cost in the Las Vegas market and realized that critical
mass could not be achieved within an acceptable period of time. Since the four
units would continue to operate at a significant loss until Drive Thru could
effectively advertise in the Las Vegas market, management decided to cease
operations in Las Vegas and sell the stores. The four Las Vegas units were
closed on October 31, 1995 and sold as of November 30, 1995.
Employees. At December 1, 1997, Drive Thru employed approximately 412
persons (including approximately 354 hourly restaurant employees), of whom 19
were management and staff personnel and 39 were restaurant management. Drive
Thru considers its employee relations to be good. None of its employees is
covered by a collective bargaining agreement.
Round The Corner
On September 30, 1995, the Company completed the sale of Round The Corner
Restaurants, Inc. ("RTC") to Hot Concepts in consideration for $100,000 in cash,
a note in the amount of $291,394, and the assumption of all of RTC's
liabilities. The sale of RTC by the Company resulted in a deferred gain of
$66,000. The Company was notified in August, 1996 of financial difficulties at
RTC and of its Chapter 11 bankruptcy filing in October, 1996. In addition to
the write-off of the note receivable, the Company recorded a reserve of
$333,000 for potential losses associated with its guarantee of two restaurant
leases and a note payable. One of such restaurants is being operated by the
Company and one has been subleased. The Company has entered into a settlement
agreement with RTC whereby RTC will pay the Company $300,000 in two installments
for the settlement of all of the Company's claims against RTC.
Bailey Preferred Stock Investment
On May 31, 1996, the Company entered into a Series A Convertible Preferred
Stock Purchase Agreement with The Bailey Company ("TBC") for the purchase by TBC
of one million shares of Series A Convertible Preferred Stock. The aggregate
purchase price for such shares was $1 million.
Effective October 31, 1997, the Company and TBC increased the maximum
number of shares of Series A Convertible Preferred Stock which are convertible
prior to April 30, 1998 and extended to April 30, 1998 the period during which
the shares of Series A Convertible Preferred Stock are convertible at the lower
$.46875 conversion price rather than $.56875. Prior to such amendments (i) a
maximum of 500,000 shares of Series A Convertible Preferred Stock could be
converted between October 1, 1997 and December 31, 1997 and only an additional
250,000 shares could be converted between January 1, 1998 and March 31, 1998 and
(ii) the $.46875 conversion price was available with respect to the first
500,000 shares of Series A Convertible Preferred Stock only between October 1
and October 31, 1997 and with respect to the next 250,000 shares of Series A
Convertible Preferred Stock only between January 1 and January 31, 1998.
Subsequent to those dates, the conversion price was increased to $.056875 with
respect to such shares. In consideration of such amendments, TBC has agreed
to review and consider assisting the Company with any proposed financing prior
to April 30,1998. TBC is not, however, obligated to assist the Company in
connection with any financing.
Government Regulation
Each of the Good Times restaurants is subject to the regulations of various
health, sanitation, safety and fire agencies in the jurisdiction in which the
restaurant is located. Difficulties or failures in obtaining the required
licenses or approvals could delay or prevent the opening of a new Good Times
restaurant. Federal and state environmental regulations have not had a material
effect on Good Times' operations. More stringent and varied requirements of
local governmental bodies with respect to zoning, land use and environmental
factors could delay or prevent development of new restaurants in particular
locations. The Company and Drive Thru are subject to the Fair Labor Standards
Act which governs such matters as minimum wages, overtime and other working con-
ditions. In addition, the Company and Drive Thru are subject to the Americans
With Disabilities Act (the "ADA") which requires restaurants and other
facilities open to the public to provide for access and use of facilities by the
handicapped. Management believes that the Company and Drive Thru are in
compliance with the ADA.
The Company and Drive Thru are also subject to federal and state laws
regulating franchise operations, which vary from registration and disclosure
requirements in the offer and sale of franchises to the application of statutory
standards regulating franchise relationships.
Competition
The restaurant industry, including the fast food segment, is highly
competitive. Drive Thru competes with a large number of other hamburger
oriented, fast food restaurants in the areas in which it operates. Many of
these restaurants are owned and operated by regional and national restaurant
chains, many of which have greater financial resources and experience than does
the Company. Restaurant companies that currently compete with Good Times in the
Denver market include McDonald's, Burger King, Wendy's and Hardee's. Double
drive through restaurant chains such as Rally's Hamburgers, Inc. and Checker's
Drive-In Restaurants, Inc., currently operating a total of over 900 double drive
through restaurants in various markets in the United States, are not currently
operating in Colorado. Management of Drive Thru believes that such double drive
through restaurant chains will not expand into Colorado; however, such
possibility exists and would result in significant competition for Drive Thru.
Management of Drive Thru believes that it may have a competitive advantage
in terms of quality of product and price-value compared to traditional fast food
hamburger chains. However, recent price discounting by the major fast food
hamburger chains has had a detrimental effect on Good Times' sales. Early
development of its double drive through concept in Colorado has given Drive Thru
an advantage over other double drive through chains that may seek to expand into
Colorado because of Good Times' brand awareness and present restaurant
locations. In addition, management of Drive Thru believes Drive Thru has a
competitive advantage in the areas of purchasing and distribution, financial
systems, marketing, construction, site selection, quality assurance and
training. Nevertheless, Drive Thru may be at a competitive disadvantage with
other restaurant chains with greater name recognition and marketing capability.
Furthermore, most of Drive Thru's competitors in the fast-food business operate
more restaurants, have been established longer and have greater financial
resources and name recognition than Good Times. There is also active
competition for management personnel, as well as for attractive commercial real
estate sites suitable for restaurants.
Trademarks - Colorado
Drive Thru has registered its mark "Good Times! Drive Thru Burgers"SM in
the state of Colorado and will endeavor to register such mark in each state it
or a franchisee intends to open a restaurant. At present, Drive Thru relies
solely upon common law trademark protection and state registration. Such
reliance will not protect Drive Thru against a prior user of the mark and, if
prior use is established, Drive Thru may not be able to use the mark in the area
of such use. While the mark is important to Drive Thru, unavailability of the
mark in any particular geographic area into which it desires to expand
operations may not necessarily be materially adverse. Such name non-
availability may, however, preclude the economies and other advantages which
may be available through nationwide or regional marketing and advertising.
ITEM 2. PROPERTIES
The Company currently leases approximately 5,600 square feet of space for
its executive offices in Westminster, Colorado for $74,000 per year. The lease
is for a five year period expiring in April 1998. Thereafter, the Company will
lease office space from The Bailey Company (holders of the Preferred Stock of
the Company) at their corporate headquarters. It is anticipated that the lease
will reduce the Company's expenses related to its office lease.
As of December 15, 1997, Drive Thru has an ownership interest in 17 Good
Times units, all of which are located in Colorado. Nine of these restaurants are
held in limited partnerships of which Drive Thru is the general partner and has
a 50% interest in eight of the partnership restaurants and a 78% interest in one
partnership restaurant. There are eight Good Times units wholly-owned by Drive
Thru.
Each of the existing Good Times restaurants is a free-standing structure
containing approximately 880 square feet (except for two conversion that are
1,700-1,900 square feet) situated on lots of approximately 18,000 to 30,000
square feet. The land is leased at all of these locations. Drive Thru intends
to enter into ground leases wherever possible. However, there is no assurance
that leasing will be available for desirable sites and Drive Thru may be
required to purchase such sites. In the event financing is not available for
such acquisitions, Drive Thru may have to utilize cash that could otherwise be
used to develop additional Good Times restaurants. In such event, Drive Thru
will endeavor to enter into sale/leaseback transactions or mortgage financing
for such real estate.
All of the restaurants are regularly maintained by the Company's repair and
maintenance staff as well as by outside contractors, when necessary. Management
believes that all of its properties are in good condition and that there will
not be a need for significant capital expenditures to maintain the operational
and aesthetic integrity of the properties for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various lawsuits in the normal course of
business. These lawsuits are not expected to have a material impact to the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's outstanding shares of Common Stock (the "Common Stock") and
Common Stock Purchase Warrants (the "Warrants") are traded on the over-the-
counter market. The following table sets forth the quarterly high and low bid
prices as reported by the National Quotation Bureau Incorporated and NASDAQ from
December 31, 1995 through September 30, 1997, as adjusted for the one-for-four
reverse stock split in May 1992. The quotations represent prices quoted between
dealers and do not include commissions, mark-ups or mark-downs and thus may not
represent actual transactions.
Common Stock Series A Warrants Series B Warrants
Bid Prices Bid Prices Bid Prices
Quarter Ended High Low High Low High Low
December 31, 1995 1.03 .47 .06 .03 .09 .03
March 31, 1996 .69 .31 .03 .03 .06 .03
June 30, 1996 .69 .50 .03 .03 .06 .03
September 30, 1996 .63 .44 .09 .03 .06 .03
December 31, 1996 .56 .32 .06 .03 .06 .03
March 31, 1997 .56 .38 .06 .06 .06 .06
June 30, 1997 .63 .38 .06 .06 .06 .06
September 30, 1997 .44 .38 .06 .06 .06 .06
As of December 1, 1997, there were approximately 354 holders of record of
Common Stock and 128 holders of Warrants. However, management estimates that
thereare not fewer than 2,700 beneficial owners of the Company's Common Stock.
The NASDAQ symbols for the Common Stock and the outstanding Series A warrants
and Series B warrants are "GTIM", "GTIMW," and "GTIMZ", respectively.
In January 1997, the Company gave notice to the holders of the Series A and
Series B warrants that the expiration date of such warrants had been extended
from February 10, 1997 to February 10, 1999 and the exercise price of such
warrants had been reduced to $2.00 per share.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company's ability to
pay future dividends will necessarily depend upon its earnings and financial
condition. However, since restaurant development is capital intensive, it is
the intention of the Company to retain earnings, if any, for that purpose.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE COMPANY, GOOD TIMES AND RTC
The following selected financial data is derived from the companies'
historical financial statements and is qualified in its entirety by such
financial statements which are included in Item 7.
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
The following presents certain historical financial information of the
Company. This financial information includes the combined operations of the
Company and Drive Thru for the fiscal years ended September 30, 1996 and
September 30, 1997.
<PAGE>
Year Ended
September 30,
Operating Data: 1996 1997
Net Revenues $12,826,000 $ 11,865,000
Restaurant Operating Costs:
Food and paper costs 4,700,000 4,286,000
Labor, occupancy and other 6,520,000 5,672,000
Depreciation and amortization 770,000 667,000
Total restaurant operating costs 11,990,000 10,625,000
Income From Restaurant Operations 836,000 1,240,000
Other Operating Expenses:
Selling, General and Administrative
Expense 1,905,000 1,713,000
Loss from operating RTC stores -0- 94,000
Loss on disposal of restaurants
and equipment 206,000 55,000
Loss on planned exit of certain
market areas 183,000 -0-
Loss from lease guarantees -0- 228,000
Total Other Operating Expenses 2,294,000 2,090,000
Income (Loss) from Operations (1,458,000) (850,000)
Other Income and (Expenses)
Minority income (expense), net 181,000 (120,000)
Interest, net (71,000) (34,000)
Other, net (109,000) (97,000)
Losses from RTC bankruptcy (564,000) -0-
Total other income and (expenses) (563,000) (251,000)
Net Loss $(2,021,000) $(1,101,000)
Preferred Stock Dividends in Arrears -0- (65,000)
Net Loss Attributable to
Common Shareholders (2,021,000) (1,166,000)
Net Loss Per Common Share $ (.31) $ (.18)
Weighted Average Shares Outstanding 6,549,000 6,376,186
September 30,
1996 1997
Balance Sheet Data:
Working Capital (deficit) $ (732,000) $ (534,000)
Total assets 7,162,000 7,192,000
Minority Interest 1,653,000 1,619,000
Long-term debt and
long-term capital leases 479,000 546,000
Stockholders' equity $ 3,007,000 $ 2,893,000
Statements in this Filing that are not historical facts may be forward-
looking statements. Actual events may differ materially from those projected in
any forward-looking statement. There are a number of important factors beyond
the control of the Company that could cause actual events to differ materially
from those anticipated by any forward-looking information. A description of
risks and uncertainties attendant to the Company and its industry and other
factors which could affect the Company's financial results are included in this
Filing.
Results of Operations
The Company sold RTC as of September 30, 1995. In October 1996, the
purchaser of RTC declared bankruptcy. The following discussion and analysis
includes expenses and liabilities related to the Company's guarantee of certain
RTC leases.
Fiscal Years 1997 and 1996
Net Revenues. Net revenues for the year ended September 30, 1997 decreased
961,000 (7.5%) to $11,865,000 from $12,826,000 for the year ended September 30,
1996. The decrease is primarily attributable to a decrease in revenue of Drive
Thru of $1,075,000 from the sale or sublease of five restaurants during the
fiscal year ended September 30, 1996. Net revenues also decreased $297,000 due
to the sale of one joint-venture restaurant to a franchisee in November 1996.
Net revenues increased $735,000 due to the opening of two joint-venture
restaurants in May and June 1997 and due to one restaurant that was not open for
the full prior year period. Net revenues decreased $226,000 or 2.1% during
fiscal 1997 from same store sales for restaurants that have been open for the
full fiscal 1996 and 1997 periods. Net revenues from Drive Thru and its
franchisees were $18,700,000 for the fiscal year ended September 30, 1997.
Management does not anticipate further declines in same store net revenues
due to the initiation of television advertising and increases in the per person
average check. However, there can be no assurances that the television
advertising will generate sufficient increases in revenues to maintain a
competitive level of media presence.
Food and Paper Costs. In fiscal 1997, Drive Thru's food and paper costs
were 36.8% of net restaurant sales compared to 37.3% of net restaurant sales in
fiscal 1996. The decrease in Drive Thru's food and paper costs is primarily
attributable to menu price increases taken during the last eight months of the
period ended September 30, 1997, with less than proportionate increases in food
and paper costs.
Income From Restaurant Operations. For the year ended September 30, 1997
Drive Thru's income from restaurant operations was $1,240,000 compared to
$836,000 for the year ended September 30, 1996.
Drive Thru's income from restaurant operations as a percentage of net
restaurant revenues was 10.6% for the year ended September 30, 1997, an increase
from 6.6% for the same prior year period. The increase in income from restaurant
operations is attributable to the sale or sublease of four under performing
restaurants as well as management's focus on improving restaurant labor and
operating efficiencies and expenses. Cash flow from ongoing restaurant
operations (income from restaurant operations plus depreciation, opening
expenses and accretion of deferred rent) as a percentage of net restaurant
sales was 17.5% for the year ended September 30, 1997 compared to 14.5% for the
year ended September 30, 1996. Income and cash flow from restaurant operations
include regional supervision, training and recruiting expenses of $431,000 for
the year ended September 30, 1996 and $354,000 for the year ended September 30,
1997. Net franchise development fees and royalties decreased from $216,000 in
fiscal 1996 to $213,000 in fiscal 1997.
Loss from Operations
Drive Thru's loss from operations before other income and expenses improved
to ($850,000) in fiscal 1997 compared to a loss from operations of ($1,458,000)
in fiscal 1996. Loss from operations was negatively impacted during fiscal 1997
by ($228,000) of expenses associated with certain Las Vegas lease guarantees, as
well as ($94,000) from the operation by Good Times of three RTC restaurants.
Subsequent to September 30, 1997, the Company negotiated the termination of one
RTC lease, entered into a sublease for one RTC lease and continues to operate
the third RTC restaurant. Selling, general and administrative expenses decreased
from $1,905,000 (14.9% of net revenues) in the year ended September 30, 1996 to
$1,713,000 (14.4% of net revenues) in the year ended September 30, 1997. The
decrease in selling, general and administrative expenses is due to reductions in
staff and administrative expenses as management has positioned the Company for
growth and development in the Colorado market.
Net Loss
The net loss for Drive Thru was ($1,101,000) for the fiscal year ended
September 30, 1997 compared to a net loss of ($2,021,000) for the fiscal year
ended September 30, 1996. Minority interest expense increased $301,000 due to
the sale of two under performing joint-venture restaurants in the year ended
September 30, 1996 and as a result of improved Income from Restaurant Operations
in the remaining joint-venture restaurants for the year ended September 30,
1997. Interest expense decreased $34,000 due to the pay off of one capital
lease in the year ended September 30, 1996 and the reduction in the balance of
other capital lease obligations. The net loss for the year ended September 30,
1996 included $564,000 of losses associated with the RTC bankruptcy.
Liquidity and Capital Resources
As of September 30, 1997, the Company had $408,000 of cash and cash
equivalents on hand. The Company has commitments of approximately $200,000 for
capital improvements for the development of one new restaurant. The Company has
entered into a settlement agreement with RTC whereby the Company will receive
$300,000 and anticipates bankruptcy court approval of the settlement agreement
by December 31, 1997. Management is actively negotiating the sale of one
existing Drive Thru restaurant to a franchisee, the proceeds of which will be
used for increasing the Company's working capital reserves and for the
development of new restaurants. Management believes this will be sufficient to
cover the working capital needs of the Company for the 1998 fiscal year.
The Company remains contingently liable on one Las Vegas restaurant lease
that has been subleased, so management anticipates minimal future losses from
RTC or Vegas lease contingencies. Management also anticipates significantly
reducing or eliminating its net loss through improved income from restaurant
operations as a result of the benefit of price increases implemented since
March, 1997, improved labor efficiencies, anticipated sales improvements from
the implementation of television advertising and further reductions in non-
restaurant related expenses.
The Company had a working capital deficit of ($534,000). 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. It is anticipated that working capital deficits
will expand as new Drive Thru restaurants are opened.
On November 1, 1996, Drive Thru completed the transfer of its partnership
interest in the Boise, Idaho restaurant. The agreement includes indemnification
of the Company on $296,000 of notes payable and the assumption of all
liabilities, obligations and operating losses by the limited partner. As a part
of the agreement, the Company paid $75,000 to the partnership.
Net cash provided by operating activities of the Company was $10,000 for
fiscal 1997 compared to net cash used in operating activities of the Company of
($893,000) in fiscal 1996. For fiscal 1997, this was the result of a net loss
of ($1,101,000) and non-cash reconciling items totaling $1,111,000 (comprised
principally of depreciation and amortization of $669,000, minority interest of
$120,000, losses associated with lease guarantees of $228,000 and decreases in
operating assets and liabilities totaling $152,000).
Net cash used in investing activities by the Company in fiscal 1997 was
$876,000, which includes the purchase of property and equipment of $803,000.
Drive Thru utilizes all cash provided by investing activities for working
capital and for capital expenditures consisting primarily of expenditures for
the development of new Good Times restaurants and refurbishment of existing
restaurants. In fiscal 1996 and 1997, Drive Thru developed three joint-venture
restaurants and began development of one company-owned restuarant, which opened
in November, 1997.
Net cash provided by investing activities by the Company in fiscal 1996 was
$418,000, which included proceeds from the sale of assets of $819,000 and the
purchase of property and equipment of $401,000.
Net cash provided by financing activities by the Company in fiscal 1997 was
$734,000, which includes principal payments on notes payable and capital leases
of $113,000, borrowings on notes payable and long-term debt of $200,000,
distributions to minority interests in partnerships of $283,000 and
contributions from minority interests in partnerships of $180,000 and proceeds
from the sale of Preferred Stock of $750,000.
Net cash provided by financing activities by the Company in fiscal 1996 was
$248,000 which includes principal payments on notes payable and long-term debt
of $99,000, borrowings on notes payable and long-term debt of $250,000 (which
was converted into 250,000 shares of preferred stock on October 1, 1996),
distributions to minority interests in partnerships of $227,000, and
contributions from minority interests in partnerships of $324,000.
Neither the Company nor Drive Thru currently have any bank lines of credit.
The Company intends to use its cash resources and cash generated from
operations for working capital, and the remodel and addition of seating to one
existing restaurant. Drive Thru will require additional capital in order to
develop additional company-owned and joint-ventured Good Times restaurants in
the future. In the event Drive Thru is not successful in obtaining additional
capital, management intends to continue to develop Good Times restaurants
through franchising and joint development activities with existing and new
franchisees.
Impact of Recently Issued Accounting Standards
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 128, "Earnings per Share" and Statement of
Financial Accounting Standards 129 "Disclosure of Information About an Entity's
Capital Structure." Statement 128 provides a different method of calculating
earnings per share than is currently used in accordance with Accounting
Principles Board Opinion 15 "Earnings per Share." Statement 128 provides for the
calculation of "basic" and "diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. Statement 129 establishes standards for disclosing
information about an entity's capital structure. Statements 128 and 129 are
effective for financial statements issued for periods ending after December 15,
1997. Their implementation is not expected to have a material effect on the
consolidated financial statements.
In 1997, the Financial Accounting Standards Board also issued Statement of
Financial Accounting Standards 130, "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards 131 "Disclosures About Segments of
an Enterprise and Related Information." Statement 130 establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, Statement 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statements that displays with
the same prominence as other financial statements. Statement 131 supersedes
Statement of Financial Accounting Standards 14 "Financial Reporting for Segments
of a Business Enterprise." Statement 131 establishes standards on the way that
public companies report financial information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the public.
It also establishes standards for disclosure regarding products and services,
geographical areas and major customers. Statement 131 defines operating
segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of
Statement 130, management has been unable to fully evaluate the impact,
if any, the statement may have on the future financial statements
disclosures. Results of operations and financial position, however,
will be unaffected by implementation of this standard. Statement 131
is not expected to have a material impact on the Company.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES:
Independent Auditor's Report
Consolidated Balance Sheet - September 30, 1997
Consolidated Statements of Operations - For the Years Ended
September 30, 1996 and 1997
Consolidated Statement of Stockholders' Equity - For the Period from
October 1, 1995 to September 30, 1997
Consolidated Statements of Cash Flows - For the Years Ended
September 30, 1996 and 1997
Notes to Consolidated Financial Statements
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Good Times Restaurants Inc. and Subsidiaries:
Independent Auditor's Report . . . . . . . . . . . . . . . . .F-2
Consolidated Balance Sheet - September 30, 1997. . . . . . . .F-3
Consolidated Statements of Operations - For the Years
ended September 30, 1996 and 1997 . . . . . . . . . . . . . .F-5
Consolidated Statement of Changes of Stockholders' Equity -
For the Period from October 1, 1995 through
September 30, 1997. . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows - For the Years Ended
September 30, 1996 and 1997. . . . . . . . . . . . . . . . . .F-7
Notes to Consolidated Financial Statements . . . . . . . . . .F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Good Times Restaurants Inc.
Westminster, Colorado
We have audited the accompanying consolidated balance sheet of Good Times
Restaurants Inc. and subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the years ended September 30, 1996 and 1997. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Good
Times Restaurants Inc. and subsidiaries as of September 30, 1997, and the
results of their operations and their cash flows for the years ended
September 30, 1996 and 1997, in conformity with generally accepted
accounting principles.
Hein + Associates LLP
Denver, Colorado
November 11, 1997
<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
Current Assets:
Cash and cash equivalents $408,000
Receivables 81,000
Inventories 51,000
Prepaid expenses and other 11,000
Receivable from settlement of RTC claims 300,000
Notes receivable 41,000
Total current assets 892,000
Property and Equipment, at cost:
Land and building 2,561,000
Leasehold improvements 2,646,000
Fixtures and equipment 3,082,000
8,289,000
Less accumulated depreciation and amortization (2,459,000)
5,830,000
Other Assets:
Notes receivable 414,000
Other 56,000
470,000
Total Assets $7,192,000
See accompanying notes to these consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $25,000
Current portion of capital lease obligations 122,000
Accounts payable 465,000
Accrued liabilities - Las Vegas 14,000
Accrued liabilities - RTC 125,000
Accrued other liabilities 675,000
Total current liabilities 1,426,000
Long-Term Liabilities:
Debt 478,000
Las Vegas accrued liabilities 166,000
RTC accrued liabilities 277,000
Capital lease obligations, net of current portion 68,000
Deferred liabilities 265,000
Total long-term liabilities 1,254,000
Minority Interests in Partnerships 1,619,000
Commitments and Contingencies (Notes 2, 3, and 6)
Stockholders' Equity:
Preferred stock, .01 par value, 5,000,000 shares
authorized, 1,000,000 Series A issued and
outstanding; liquidation preference of
533,750, which includes unpaid dividends
of $65,000 10,000
Common stock, $.001 par value; 50,000,000 shares
authorized, 6,397,778 shares issued and outstanding 6,000
Capital contributed in excess of par value 11,822,000
Accumulated deficit (8,945,000)
Total stockholders' equity 2,893,000
Total Liabilities and Stockholders' Equity $7,192,000
See accompanying notes to these consolidated financial statements.<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
September 30,
1996 1997
Net Revenues:
Restaurant sales $12,610,000 $11,652,000
Area development and franchise fees 40,000 20,000
Franchise royalties 176,000 193,000
Total net revenues 12,826,000 11,865,000
Restaurant Operating Costs:
Food and paper costs 4,700,000 4,286,000
Restaurant labor costs 4,510,000 3,884,000
Restaurant occupancy costs 1,356,000 1,295,000
Accretion of deferred rent 57,000 47,000
Other restaurant operating costs 431,000 358,000
Opening expenses 166,000 88,000
Depreciation and amortization 770,000 667,000
Total restaurant operating costs 11,990,000 10,625,000
Income from Restaurant Operations 836,000 1,240,000
Other Operating Expenses:
General and administrative 1,184,000 1,064,000
Advertising 721,000 649,000
Loss from operating RTC stores - 94,000
Loss on disposal of restaurants
and equipment 206,000 55,000
Loss on planned exit of certain
market areas 183,000 -
Loss from Las Vegas lease guarantees - 228,000
Total other operating expenses 2,294,000 2,090,000
Loss From Operations (1,458,000) (850,000)
Other Income (Expenses):
Interest income 71,000 55,000
Interest expense (142,000) (89,000)
Minority interest in income (loss)
of partnerships 181,000 (120,000)
Losses associated with RTC bankruptcy (564,000) -
Other, net (109,000) (97,000)
Total other expenses, net (563,000) (251,000)
Net Loss $(2,021,000) $(1,101,000)
Preferred Stock Dividends $ - $ (65,000)
Net Loss Attributable to
Common Shareholders $(2,021,000) $(1,166,000)
Net Loss Per Common Share $ (.31) $ (.18)
Weighted Average Common Shares
Outstanding 6,549,000 6,376,186
See accompanying notes to these consolidated financial statements.<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1995 THROUGH SEPTEMBER 30, 1997
Preferred Stock Common Stock
Issued Par Issue Par
Shares Value Shares Value
Balances, October 1, 1995 - $ - 6,898,152 $ 7,000
Cancellation of note
from stockholders - - (625,000) (1,000)
Stock issued to employee
benefit plan - - 41,668 -
Net loss - - - -
Balances, September 30, 1996 - - 6,314,820 $ 6,000
Preferred stock issued 1,000,000 10,000 - -
Preferred stock issuance cost - - - -
Stock issued to employee
benefit plan - - 82,958 -
Net Loss - - - -
Balances, September 30, 1997 1,000,000 $ 10,000 6,397,778 $ 6,000
See accompanying notes to these consolidated financial statements.<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1994 THROUGH SEPTEMBER 30, 1996
(Continued from previous page)
Capital in Officers
Excess of Notes Accumulated
Par Value Receivables Deficit Total
Balances- October 1, 1995 $11,683,000 $ (881,000) $(5,823,000) $ 4,986,000
Cancellation of note
from stockholders (880,000) 881,000 - -
Stock issued to employee
benefit plan 42,000 - - 42,000
Net loss - - (2,021,000) (2,021,000)
Balances -September 30, 1996 10,845,000 - (7,844,000) 3,007,000
Preferred stock issued 990,000 - - 1,000,000
Preferred stock issuance
cost (52,000) - - (52,000)
Stock issued to employee
benefit plan 39,000 - - 39,000
Net Loss - - (1,101,000) (1,101,000)
Balances-September 30, 1997 $11,822,000 $ - $(8,945,000) $ 2,893,000
See accompanying notes to these consolidated financial statements.<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
September 30,
1996 1997
Cash Flows from Operating Activities:
Net loss $(2,021,000) $(1,101,000)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 773,000 669,000
Accretion of deferred rent 57,000 47,000
Minority interest (181,000) 120,000
Loss on planned exit of certain
market areas 183,000 -
Loss on disposal of restaurants &
equipment 206,000 55,000
Losses associated with RTC bankruptcy 564,000 -
Loss on lease guarantees - 228,000
Gain on sale of property, net (75,000) (2,000)
Common stock for services 42,000 39,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables 130,000 46,000
Inventories 19,000 3,000
Prepaid expenses and other (130,000) 17,000
(Decrease) increase in:
Accounts payable (241,000) 61,000
Accrued and other liabilities (219,000) (172,000)
Net cash provided by (used in)
operating activities (893,000) 10,000
Cash Flows from Investing Activities:
Payments for the purchase of property
& equipment (401,000) (803,000)
Proceeds from sale of assets 819,000 2,000
Payments made in conjunction with the
sale of a store - (75,000)
Net cash provided by (used in)
investing activities 418,000 (876,000)
Cash Flows from Financing Activities:
Principal payments on notes payable and
long-term debt (99,000) (113,000)
Borrowings on notes payable and long-term debt 250,000 200,000
Distributions paid to minority interests in
partnerships (227,000) (283,000)
Contributions from minority interest in
partnerships 324,000 180,000
Proceeds from the sale of preferred stock - 750,000
Net cash provided by financing activities 248,000 734,000
Increase (Decrease) in Cash and Cash Equivalents (227,000) (132,000)
Cash and Cash Equivalents, beginning of period 767,000 540,000
Cash and Cash Equivalents, end of period $540,000 $408,000
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $142,000 $89,000
Purchase of equipment through payables
and capital leases $ - $57,000
Stock issued to employee 401(k) plan $ 42,000 $39,000
Conversion of note to preferred stock $ - $250,000
Cancellation of notes in return for common stock $881,000 $ -
See accompanying notes to these consolidated financial statements.
<PAGE>
1. Organization and Summary of Significant Accounting Policies:
Organization - Good Times Restaurants Inc.
(Good Times or the Company) is a Nevada corporation. In July 1992,
Good Times merged with Round the Corner Restaurants, Inc. (RTC).
The Company operates through its subsidiary Good Times Drive Thru Inc.
(Drive Thru). All of the stock of RTC was sold as of September 30,
1995.
Drive Thru commenced operations in 1986 and, as of September 30, 1997,
operates 16 company-owned and joint venture drive-thru fast food
hamburger restaurants. The Company's restaurants are primarily in
Colorado. In addition, Drive Thru has 10 franchises operating in
Colorado and one in Boise, Idaho, and is offering franchises for
development of additional Drive Thru restaurants.
Principles of Consolidation - The consolidated financial statements
include the accounts of Good Times and its subsidiaries, including
certain 50% owned limited partnerships in which the Company exercises
control as general partner. All intercompany accounts and transactions
are eliminated. The unrelated limited partners' equity of each
partnership has been recorded as minority interest in the accompanying
consolidated financial statements.
Deferred Opening Costs - Prior to October 1, 1996, the Company deferred
certain pre-opening costs. These costs were being amortized over a one
year period. Effective October 1, 1996, the Company adopted a policy of
expensing all pre-opening costs as incurred. The expensing method is
the preferable method based on proposed accounting rule changes and
recent accounting trends. The effect of the change was to increase
the 1997 loss by approximately $51,000 [($.01) per share].
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method, and consist of restaurant
food items and related paper supplies.
Property and Equipment-Depreciation is recognized on the straight-line
method over the estimated useful lives of the assets or the lives of
the related leases, if shorter, as follows:
Building 15 years
Leasehold improvements 7-15 years
Fixtures and equipment 3-8 years
Maintenance and repairs are charged to expense as incurred, and expenditures
for major improvements are capitalized. When assets are retired, or
otherwise disposed of, the property accounts are relieved of costs and
accumulated depreciation with any resulting gain or loss credited or charged
to income.
Sales of Restaurants and Restaurant Equity Interests - Sales of restaurants
or non-controlling equity interests in restaurants developed by the Company
are accounted for under the full accrual method or the installment method.
Under the full accrual method, gain is not recognized until the
collectibility of the sales price is reasonably assured and the earnings
process is virtually complete without further contingencies. When a sale
does not meet the requirements for income recognition, gain is deferred
until those requirements are met. Under the installment method, gain is
recognized as principal payments on the related notes receivable are
collected.
Deferred Liabilities - Rent expense is reflected on a straight-line basis
over the term of the lease for all leases containing step-ups in base rent.
An obligation representing future payments (which totaled $190,000 as of
September 30, 1997) has been reflected in the accompanying consolidated
balance sheet as a deferred liability. The remaining balance includes a
deferred gain of $53,000 on the sale of a restaurant.
Advertising - The Company incurs advertising expense in connection with
marketing of its restaurant operations. Advertising costs are expensed the
first time the advertising takes place.
Franchise and Area Development Fees - Individual franchise fee revenue is
deferred when received and is recognized as income when the Company has
substantially performed all of its obligations under the franchise agreement
and the franchisee has commenced operations. Area development fees and
related direct expenses are recognized ratably upon opening of the
applicable restaurants. Continuing royalties from franchisees, which are a
percentage of the gross sales of franchised operations, are recognized as
income when earned. Franchise development expenses, which consist primarily
of legal costs associated with developing and executing master franchise
agreements, are expensed as incurred.
Statement of Cash Flows - For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Income Taxes - Income taxes are provided for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." SFAS
No. 109 requires an asset and liability approach in the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of
the Company's assets and liabilities.
Net Loss per Common Share - The computations of loss per share are based on
the weighted average number of common shares outstanding during each fiscal
period. Warrants, options, and preferred stock outstanding are not included
in the computations in loss years because their effect would be
antidilutive.
Financial Instruments and Concentrations of Credit Risk - Credit risk
represents the accounting loss that would be recognized at the reporting
date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise
from financial instruments exist for groups of customers or counterparties
when they have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly effected by changes
in economic or other conditions. Financial instruments with off-balance-
sheet risk to the Company include lease liabilities whereby the Company is
contingently liable as the primary leasee of certain leases that were
assigned to third parties in connection with various store closures (see
Note 6).
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents and
receivables. At September 30, 1997, the Company maintained cash balances
with a commercial bank, which were approximately $233,000 in excess of FDIC
limits and maintained a government fund balance of $57,000. At September
30, 1997, notes receivable totaled $455,000 and were from three entities.
The notes receivables are generally collateralized by buildings and
equipment and guaranteed by certain individuals. Additionally, the Company
has receivables of $81,000, which consists principally of current franchise
receivables.
The Company purchases 100% of its restaurant food and paper from one
vendor. The Company believes that there are a sufficient number of other
suppliers from which food and paper could be purchased to prevent any
long-term adverse consequences.
The Company operates in one industry segment, restaurants. A geographic
concentration exists because the Company's customers are generally located
in the State of Colorado.
The estimated fair values for financial instruments are determined at
discrete points in time based on relevant market information. These
estimates involve uncertainties and cannot be determined with precision.
The carrying amounts of cash, receivables, notes receivables, long-term
debt, capital lease obligations, accounts payable, and accrued liabilities
approximate fair value as a result of the short-term maturities or interest
rates that approximate the Company's current expected borrowing and lending
rates.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these
financial statements and the accompanying notes. The actual results could
differ from those estimates.
Impact of Recently Issued Accounting Standards - In 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards 128, "Earnings per Share" and Statement of Financial Accounting
Standards 129 "Disclosure of Information About an Entity's Capital
Structure." Statement 128 provides a different method of calculating
earnings per share than is currently used in accordance with Accounting
Principles Board Opinion 15 "Earnings per Share." Statement 128 provides
for the calculation of "basic" and "diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. Statement 129
establishes standards for disclosing information about an entity's capital
structure. Statements 128 and 129 are effective for financial statements
issued for periods ending after December 15, 1997. Their implementation is
not expected to have a material effect on the consolidated financial
statements.
In 1997, the Financial Accounting Standards Board also issued Statement of
Financial Accounting Standards 130, "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards 131 "Disclosures About Segments
of an Enterprise and Related Information." Statement 130 establishes
standards for reporting and display of comprehensive income, its components
and accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, Statement 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statements that displays with the same prominence as other financial
statements. Statement 131 supersedes Statement of Financial Accounting
Standards 14 "Financial Reporting for Segments of a Business Enterprise."
Statement 131 establishes standards on the way that public companies report
financial information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. Statement 131 defines operating
segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of Statement
130, management has been unable to fully evaluate the impact, if any, the
statement may have on the future financial statements disclosures. Results
of operations and financial position, however, will be unaffected by
implementation of this standard. Statement 131 is not expected to have a
material impact on the Company.
Reclassification - Certain reclassifications have been made to conform 1996
financial statements to the presentation in 1997. The reclassifications had
no effect on net loss.
2. Liquidity and Continued Operations:
As reflected in the accompanying financial statements, the Company has
incurred net losses the past two years and has negative or marginal cash
flows from operations. Management has taken the following actions to
improve the Company's cash flow and operating results:
The Company has finalized a settlement agreement with RTC which will
provide $300,000 in cash to the Company and reduce the Company's
lease liability to one RTC restaurant that has been subleased and
one RTC restaurant that is being operated by the Company until it
can be sold or the lease term expires. The Company remains
contingently liable on one Las Vegas restaurant lease that has been
subleased, therefore, management anticipates minimal future losses
from RTC or Vegas lease contingencies.
Management is actively negotiating the sale of one existing Drive
Thru restaurant to a franchisee, the proceeds of which will be used
for increasing the Company's working capital reserves and for the
development of new restaurants.
Management also anticipates significantly reducing or eliminating
its net loss through improved income from restaurant operations as a
result of the benefit of price increases implemented since March
1997, improved labor efficiencies, anticipated sales improvements
from the implementation of television advertising and further
reductions in non-restaurant related expenses.
Management believes that the actions taken above will provide adequate cash
flow to meet the Company's operating needs and provide capital needed to
continue the Company's fiscal 1998 restaurant and franchise expansion
program.
3. Sale of Restaurants:
On September 30, 1995, the Company sold all its stock in RTC, a 100% owned
subsidiary, for $100,000 cash and a $291,000 note. The note had an interest
rate of prime minus 2% and is payable quarterly based on an amortization
period of 20 years, with a balloon payment at the end of 5 years. The
Company elected to report the gain on sale under the installment method and
originally deferred the unrealized gain of $66,000 on the $291,000 note. In
1996, the purchaser of RTC declared bankruptcy. In connection with the
bankruptcy of RTC in 1996, the Company recorded $231,000 associated with the
write-off of the RTC note receivable (net of deferred gain) and accrued a
$333,000 loss associated with RTC lease guarantees and a note payable (net
of estimated recoveries) guaranteed by the Company. The Company has
subleased one RTC restaurant and is currently managing one RTC restaurant in
order to minimize future losses associated with its lease guarantees.
Operating RTC stores resulted in a loss of $94,000 during fiscal 1997, which
is recorded in other operating expenses.
During the year ended September 30, 1996, the Company closed two
underperforming restaurants and leased the land and building to the
purchaser. One of these restaurant sites was closed in September 1996, and
the Company moved the building and equipment to a new location in fiscal
1997. During the year ended September 30, 1996, the Company recorded a
loss, net of minority interest, of approximately $103,000 as a result of the
plan. No significant additional costs were recorded in 1997. In 1997, the
Company took over the second site from the purchaser, and converted this
restaurant back to the Drive-Thru concept.
During the year ended September 30, 1996, the Company approved the sale of
its interest in one of its managed limited partnerships to the limited
partner. The effective date of the sale was November 1, 1996. The
agreement provides for the limited partner to assume all liabilities,
obligations, and operating losses, and the Company agreed to pay the
purchaser $75,000 and surrender its interest in the limited partnership. As
of September 30, 1996, the Company recorded approximately $184,000 in losses
as a result of this transaction. No significant additional costs were
recorded in 1997. The Company remains a guarantor on $296,000 of notes
payable. However, the purchaser and an additional guarantor have personally
agreed to indemnify the Company for any payments made on the note by the
Company.
During the year ended September 30, 1996, the Company sold a restaurant to a
franchisee for $480,000 cash and a $20,000 note. The Company recognized a
gain on the sale in the amount of approximately $95,000, which is included
in other income and expenses.
4. Notes Receivable:
Notes receivable consist of the following as of September 30, 1997:
Note receivable, 8%, initially due March 1, 1997. Refinanced
subsequent to year-end. Under the new terms, monthly payments of
interest only are due until June 1, 1998. Starting in June 1998,
equal monthly payments of principal and interest are due, with the
final payment due in June 2010. Collateralized by a building and
guaranteed by an individual. $315,000
Note receivable, 8%, initially due October 1, 1997. Refinanced
subsequent to year-end. Under the new terms, monthly payments of
interest only are due until June 1, 1998. Starting in June 1998,
equal monthly payments of principal and interest are due, with the
final payment due in June 2008. Collateralized by a building and
guaranteed by an individual. 78,000
Note receivable, 9%, monthly payments of principal and interest in
the amount of $1,245, with final payment on September 1, 2000
collateralized by building and equipment. The note is personally
guaranteed by an individual. 42,000
Other notes, various terms. 20,000
455,000
Less current portion. (41,000)
$414,000
5. Notes Payable and Long-Term Debt:
Promissory note, payable by a limited partnership, of which the
Company is the general partner, interest and principal payable
monthly, with the final payment due August 1, 2004. The interest
rate on the note is variable based on the 30-day commercial paper
plus 3%, with a floor of 6%. At the option of the Company, the
interest rate may be converted to a fixed rate equal to the 7-year
treasury bill rate plus 3%, with a floor of 8%. This note is
guaranteed by the Company, and the limited partner who is also the
holder of the preferred stock. $197,000
Note payable to an individual and his pension plan with interest
at 12%, payable quarterly, principal due in May 2000. 300,000
Other notes payable, various terms. 6,000
503,000
Less current portion. (25,000)
$478,000
In March 1996, the Company signed a $250,000 promissory note. The interest
rate on the note was at prime plus 2% points. On October 1, 1996, this note
was converted to 250,000 shares of preferred stock (see Note 11).
As of September 30, 1997, debt payments over the next five years are as
follows:
1998 $25,000
1999 27,000
2000 326,000
2001 29,000
2002 31,000
Thereafter 65,000
$503,000
6. Commitments and Contingencies:
The Company's office space, and the land underlying the Drive Thru
restaurant facilities, are leased under operating leases. Certain leases
include provisions for additional contingent rental payments if sales
volumes exceed specified levels. The Company paid no material amounts as a
result of these provisions. Property and equipment at September 30, 1997
includes equipment under capital leases of approximately $427,000, less
accumulated depreciation of approximately $160,000. Depreciation of leased
equipment is included in depreciation and amortization expense.
Following is a summary of operating lease activities:
Operating
Leases
1997
Minimum rentals $1,252,000
Less sublease rentals (351,000)
Net rent expense $ 901,000
As of September 30, 1997, future minimum rental commitments required under
Good Times and Drive Thru capital and operating leases that have initial or
remaining noncancellable lease terms in excess of one year are as follows:
Capital Operating
Leases Leases
1998 $141,000 $1,167,000
1999 72,000 1,157,000
2000 - 1,169,000
2001 - 1,045,000
2002 - 1,000,000
Thereafter - 7,217,000
213,000 12,755,000
Less sublease rentals - (3,575,000)
213,000 $9,180,000
Less amount representing interest (23,000)
Present value of net minimum
lease payments $190,000
The Company remains contingently liable on several leases of restaurants that
were previously sold, which have been included in the future minimum rental
commitment schedule above. The Company is also a guarantor on a RTC mortgage
payable of approximately $725,000 and a Small Business Administration loan to
a franchisee for approximately $377,000.
The Company is currently in default on a capital lease covenant requiring it
to maintain a minimum net worth of $3,500,000. The Company expects to obtain
a waiver for this default and has therefore, classified $51,000 due after
September 30, 1998 on the lease as long-term.
The Company is subject to litigation in the normal course of business. The
litigation is not expected to have a material impact to the Company.
7. Franchise and Area Development Agreements:
The Company has two area development agreements which give the rights to
franchise an additional two Drive Thru restaurants in Colorado and two in
Boise, Idaho. Under the area development agreements, the Company generally
has the right to build restaurants within the specified geographical areas.
8. Managed Limited Partnerships:
Drive Thru is the general partner of certain limited partnerships that were
formed to develop Drive Thru restaurants. Limited partner contributions have
been used to construct new restaurants. Drive Thru, as a general partner,
generally receives an allocation of 50% of the profit and losses and a fee
for its management services. The limited partners' equity has been recorded
as a minority interest in the accompanying consolidated financial statements.
9. Income Taxes:
Deferred tax assets (liabilities) are comprised of the following at September
30, 1997:
Long-Term
Deferred assets (liabilities):
Partnership basis difference $ 650,000
Net operating loss carryforward 2,250,000
Property and equipment basis differences (1,606,000)
Other accrued liability difference 77,000
Net deferred tax assets 1,371,000
Less valuation allowance* (1,371,000)
Net deferred tax assets $ -
________________________
* The valuation allowance increased by $192,000 during the year ended
September 30, 1997.
The Company has no taxable income under Federal and state tax laws.
Therefore, no provision for income taxes was included. The Company has net
operating loss carryforwards of approximately $6,030,000 for income tax
purposes which expire from 2002 through 2011. The use of these losses may
be restricted in the future due to changes in ownership.
10. Related Parties:
The holder of the preferred stock has entered into a co-development
agreement with the Company as well as a franchise agreement. The preferred
stockholder and the Company have guaranteed a loan made to the co-development
partnership in the amount of $200,000. Two of the Company's Board members
are principals of the Company which is the holder of the preferred stock.
11. Stockholders' Equity:
The Company has the authority to issue 5,000,000 shares of preferred stock.
The Board of Directors has the authority to issue such preferred shares in
series and determine the rights and preferences of the shares as may be
determined by the Board of Directors. As of September 30, 1997,
1,000,000 shares have been authorized as described below.
On October 1, 1996, the Company closed the sale of $1 million of preferred
stock, $250,000 of which was the conversion of a note payable. The
remaining $750,000 of preferred stock was purchased in three equal
installments of $250,000 on October 1,1996, January 1, 1997, and April 1,
1997. In connection with the sale, the Company paid stock issuance costs in
the amount of $52,000. The preferred stock has a cumulative dividend rate
of 8% and a liquidation preference of $.46875, plus all accrued but unpaid
dividends. The dividend may be paid out, at the option of the holder, in
cash or common stock. If paid in stock, the value of the stock will be
determined based on 75% of the average of the last 14 days trading prices
but not less than $.46875 per share. 500,000 of the shares are convertible
to common stock on October 1, 1997, 750,000 shares are convertible on
January 1, 1998, and the full 1,000,000 shares are convertible on April 1,
1998. The conversion prices range from $.46875 to $.56875 through April 30,
1999. In December 1997, the Board of Directors extended the existing
conversion rate of $.46875 for six months. The conversion price
approximated market price on the date the terms of the sale were agreed to.
Any shares that have not been converted as of May 1, 1999, are convertible
at the greater of the dividend conversion rate described above at the time
of conversion or $.46875. The preferred shareholders also have the right of
participation on additional security issuances, except for a straight debt
issuance, with no equity feature, and have certain registration rights. The
preferred shareholders can also appoint two Board members, and one member of
the compensation committee. Among other restrictions and requirements, the
preferred stock agreement requires the Company to restrict future long-term
borrowings based on percentage of earnings and requires the Company to spend
$1,000,000 for the development of new restaurants before December 31, 1997
unless the board of directors unanimously directs otherwise.
12. Stock-Based Compensation:
The Company has an incentive stock option plan (the ISO) and a non-statutory
stock option plan (the NSO) whereby 750,000 shares and 300,000 shares,
respectively, are reserved for issuance. As of September 30, 1997, options
for the purchase of 359,500 and 105,602 shares of common stock are
outstanding under these plans, respectively, and no options have been
exercised.
The following is a summary of activity under these stock option plans for
the years ended September 30, 1997 and 1996.
Incentive Stock Options - Activity for incentive stock options is summarized
below.
1996 1997
Weighted Weighted
Average Average
Number Exercise Number Exercise
Of Shares Price of Shares Price
Outstanding, beginning of year 527,590 $2.38 371,300 $2.28
Canceled (212,590) 2.34 (373,300) 2.25
Granted 56,300 1.25 361,500 0.50
Outstanding, end of year 371,300 2.26 359,500 0.50
For all options granted during 1996 and 1997, the weighted average market price
of the Company's common stock on the grant date was approximately equal to the
weighted average exercise price. At September 30, 1997, options for 315,250
shares were exercisable. An additional 9,900 will be exercisable on September
30, 1998, 14,550 will be exercisable on September 30, 1999, and the remaining
19,800 will be exercisable on September 30, 2000. All the outstanding options
at September 30, 1997 had an exercise price of $.50. If not previously
exercised, options outstanding at September 30, 1997 will expire on October 1,
2007.
Non-Qualified Stock Options - The Company has also granted non-qualified options
which are summarized as follows for the years ended September 30, 1996 and 1997:
1996 1997
Weighted Weighted
Average Average
Number Exercise Number Exercise
Of Shares Price of Shares Price
Outstanding, beginning of year 140,602 $2.19 105,602 $2.34
Granted - - - -
Canceled (35,000) 1.75 - -
Exercised - - - -
Outstanding, end of year 105,602 2.34 105,602 2.34
All outstanding non-qualified options were exercisable at September 30, 1997.
If not previously exercised, non-qualified options outstanding at September 30,
1997 will expire as follows:
Weighted
Average
Number Exercise
Year Ending September 30, of Shares Price
1998 45,606 $3.12
1999 59,996 1.75
Total 105,602
Stock Purchase Warrants - The Company has granted warrants which are summarized
as follows for the years ended September 30, 1996 and 1997:
<PAGE>
1996 1997
Weighted Weighted
Average Average
Number Exercise Number Exercise
Of Shares Price of Shares Price
Outstanding, beginning of year 3,448,548 $1.85 3,448,548 $1.85
Granted - - 2,683,013 2.00
Repriced - - (2,683,013) 2.90
Expired - - (593,185) 3.04
Outstanding, end of year 3,448,548 $1.85 2,855,363 $1.97
All outstanding warrants were exercisable at September 30, 1997. If not
previously exercised, warrants outstanding at September 30, 1997 will expire as
follows:
Weighted
Average
Number Exercise
Year Ending September 30, of Shares Price
1998 122,350 $1.35
1999 2,683,013 2.00
2000 50,000 1.40
Total 2,855,363
The above tables do not include 209,000 warrants which are issuable upon the
exercise of certain warrants.
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options and
warrants which are granted to employees. Accordingly, no compensation cost
has been recognized for grants of options and warrants to employees since
the exercise prices were not less than the fair value of the Company's
common stock on the grant dates. Had compensation cost been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of FAS 123, the Company's net loss and loss per
share would have been changed to the pro forma amounts indicated below.
Year Ended September 30,
1996 1997
Net loss applicable to
common stockholders:
As reported $2,021,000 $1,166,000
Pro forma 2,075,000 1,278,000
Net loss per common share:
As reported $(.31) $(.18)
Pro forma (.32) (.20)
The fair value of each employee option granted in 1997 and 1996 was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
Year Ended December 31,
1996 1997
Expected volatility 134% 130%
Risk-free interest rate 6.5% 6.5%
Expected dividends - -
Expected terms (in years) 3 3
Subsequent to year-end, the Company issued 178,400 incentive stock options
at a exercise price of $.50. These options expire in the year 2007. The
Company also issued 70,000 non-statutory options at an exercise price of
$.50 to the Company's directors, which expire in the year 2002.
13. Retirement Plan:
The Company has implemented a 401(k) profit sharing plan (the Plan).
Eligible employees may make voluntary contributions to the Plan, which are
matched by the Company, using the Company's common stock in an amount equal
to 25% of the employees contribution up to 6% of their compensation. The
amount of employee contributions is limited as specified in the Plan. The
Company may, at its discretion, make additional contributions to the Plan or
change the matching percentage. The Company has accrued for contributions
of $21,000 at September 30, 1997.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 9-12.
Incorporated herein by reference are Part III, Items 9 through 12 to the
Registrant's definitive proxy statement for its Annual Meeting of Shareholders
to be held on February 12, 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description Location
1.1 Underwriting Agreement between Registrant
and Cohig & Associates, Inc. dated
June 15, 1992 (6) - Exhibit 1.1
2.1 Acquisition Agreement between Registrant
and RTC, as amended (6) - Exhibit 2.1
3.1 Articles of Incorporation of the Registrant (1) - Exhibit 3.1
3.2 Amendment to Articles of Incorporation of
the Registrant dated January 23, 1990 (2) - Exhibit 3.1
3.4 Restated Bylaws of Registrant dated
June 10, 1996 (11) - Exhibit 3.4
3.5 Certificate of Amendment of Articles
of Incorporation (11) - Exhibit 3.5
3.6 Restated Bylaws of Registrant dated
November 7, 1997 *
4.1 Form of Warrant Certificate for the
purchase of an aggregate of 920,000 shares
of Registrant's Common Stock issued in
1990 public offering (3) - Exhibit 4.2
4.2 Form of Underwriters' Warrant for the
purchase of 80,000 shares issued in
connection with 1990 public offering (3) - Exhibit 1.4
4.3 Form of Underwriters' Warrant for the
purchase of 69,000 units issued in
connection with 1992 public offering (6) - Exhibit 1.4
4.4 Form of Warrant Certificate for the
purchase of an aggregate of 720,000
shares of Registrant's common stock
issued in 1992 public offering (6) - Exhibit 4.4
4.5 Amended and Restated Warrant Agreement (6) - Exhibit 4.3
4.6 Form of Warrant Certificate to purchase
an aggregate of 105,000 shares of
Registrant's common stock issued in
November 1991 Private Offering (5) - Exhibit 4.2
4.7 Form of registration rights agreement
relating to 105,000 shares of the Registrant's
common stock issuable upon exercise of warrants
issued in November 1991 Private Offering (5) - Exhibit 4.3
4.8 Form of Warrant Certificate for the purchase
of an aggregate 50,000 shares of Registrant's
Common Stock issued to limited partners of
Good Times Limited Partnership I (6) - Exhibit 4.14
4.9 1992 Incentive Stock Option Plan of
Registrant, as amended (7) - Exhibit 4.20
4.10 1992 Non-Statutory Stock Option Plan of
Registrant, as amended (7) - Exhibit 4.22
4.11 Form of warrant dated June 1, 1995 for the
purchase of 50,000 shares of Registrant's
Common Stock at an exercise price of
$1.40 per share issued to Boulder
Radiologists Inc., Defined Benefit Plan -
Dubach, of indebtedness by Registrant to
Dr. Kenneth Dubach (9) - Exhibit 4.15
4.16 First Amended and Restated Series B
Warrant Agreement (11) - Exhibit 4.16
4.17 Third Amended and Restated Warrant
Agreement (11) - Exhibit 4.17
10.1 Form of Agreement of Limited Partnership
of Good Times Limited Partnership I (5) - Exhibit 10.16
10.2 Promissory Note made by Fast Restaurants,
Inc. and Colfax & Krameria Inc. to
Good Times in the principal amount
of $280,000 (7) - Exhibit 10.49
10.3 Form of Promissory Note dated June 1, 1995
by and between Good Times Restaurants Inc.
and Boulder Radiologist Inc. Pension Plan
FBO Dubach in the amount of $300,000
due and payable on May 31, 2000 (9) - Exhibit 10.28
10.4 Lease by and between Sheridan Park 7
Partners, a Colorado limited partnership,
and Good Times Restaurants Inc. in
consideration for the payment of rent
for office space in the aggregate amount
of $350,796, commencing April 1, 1993
through April 1998 (9) - Exhibit 10.29
10.5 Master Lease Agreement in the aggregate
amount of $2,000,000 between Capital
Associates International, Inc., as Lessor,
and Good Times Drive Thru Inc. as Lessee (9) - Exhibit 10.30
10.6 Employment Agreement agreed to September
14, 1994 between Registrant and Boyd E.
Hoback (9) - Exhibit 10.32
10.7 Form of Promissory Note dated November 3, 1995
by and between AT&T Commercial Finance
Corporation, Boise Co-Development Limited
Partnership, Good Times Drive Thru Inc. as
general partner, and Good Times Restaurants
Inc. as guarantor in the amount of
$254,625 (9) - Exhibit 10.34
10.8 Form of Promissory Note dated November 3, 1995
by and between AT&T Commercial Finance
Corporation, Boise Co-Development Limited
Partnership, Good Times Drive Thru Inc. as
general partner, and Good Times Restaurants
Inc. as guarantor in the amount of
$104,055 (9) - Exhibit 10.35
10.9 Series A Convertible Preferred Stock Purchase
Agreement dated as of May 31, 1996 by and
among Good Times Restaurants Inc. and
The Bailey Company (11) - Exhibit 10.13
10.10 First Amendment to Series A Convertible
Preferred Stock Purchase Agreement
effective as of May 31, 1996 by and between
Good Times Restaurants Inc. and The
Bailey Company (11) - Exhibit 10.14
10.11 Registration Rights Agreement dated
May 31, 1996 regarding registration
rights of the common stock issuable
upon conversion of the Series A
Convertible Preferred Stock (11) - Exhibit 10.15
10.12 Employment Agreement dated May 3, 1996
between Registrant and Boyd E. Hoback (11) - Exhibit 10.17
10.13 Amendment and Agreement Regarding
Series A Convertible Preferred Stock
by & between Good Times Restaurants Inc.
and The Bailey Company dated December
3, 1997, effective as of October 31, 1997 *
10.14 Indemnification by Dr. Kenneth Dubach to Good
Times Drive Thru Inc. dated December 10, 1996
with respect to the promissory note of
the Boise Co-Development Limited
Parntership dated November 3, 1995 in the
original amount of $254,625 and the promissory
note dated November 3, 1995 in the original
amount of $104,055. *
10.15 Settlement Agreement between Good Times
Restaurants Inc. and Round The Corner
Restaurants, Inc. dated August 29, 1997 *
21.1 Subsidiaries of Registrant *
23.1 Consent of HEIN + ASSOCIATES LLP *
(1) Incorporated by reference from Registrant's Registration Statement on Form
S-18 as filed with the Commission on November 30, 1988
(File No. 33-25810-LA).
(2) Incorporated by reference from Registrant's current report on Form 8-K dated
January 18, 1990 (File No. 33-25810-LA).
(3) Incorporated by reference from Registrant's Registration Statement on Form
S-1 as filed with the Commission on March 26, 1990 (File No. 33-33972).
(4) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1990
(5) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1991
(6) Incorporated by reference from Registrant's Registration Statement on Form
S-1 as filed with the Commission on March 27, 1992 (File No. 33-46813).
(7) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1993
(8) Incorporated by reference from Registrant's Form 10-KSB for the fiscal
year ended September 30, 1994.
(9) Incorporated by reference from Registrant's Form 10-KSB/A for the fiscal
year ended September 30, 1995.
(10)Incorporated by reference from Registrant's Form 10-QSB for the quarter
ended March 31, 1996.
(b) Current Reports on Form 8-K.
None.
(11)Incorporated by reference from Registrant's Form 10-KSB for the fiscal
year ended September 30, 1996.
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 23, 1997 GOOD TIMES RESTAURANTS INC.
By: /s/ Boyd E. Hoback, President
Boyd E. Hoback, President
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Geoffrey R. Bailey
Geoffrey R. Bailey Chairman December 18, 1997
/s/ Dan W. James, II
Dan W. James II Director December 23, 1997
/s/ Boyd E. Hoback
Boyd E. Hoback President, Chief December 23, 1997
Executive Officer
and Director
/s/ David E. Bailey
David E. Bailey Director December 18, 1997
/s/ Thomas P. McCarty
Thomas P. McCarty Director December 22, 1997
/s/ Alan A. Teran
Alan A. Teran Director December 19, 1997
/s/ Richard J. Stark
Richard J. Stark Director December 23, 1997
RESTATED
BYLAWS
OF
GOOD TIMES RESTAURANTS INC.
November 7, 1997<PAGE>
RESTATED
BYLAWS
OF
GOOD TIMES RESTAURANTS INC.
TABLE OF CONTENTS
PAGE
ARTICLE I. NAME, REGISTERED OFFICE AND REGISTERED AGENT
Section 1. Name. . . . . . . . . . . . . . . . . . . . . .1
Section 2. Registered Office and Registered Agent. . . . .1
ARTICLE II. SHAREHOLDERS MEETINGS
Section 1. Annual Meetings . . . . . . . . . . . . . . . .1
Section 2. Special Meetings. . . . . . . . . . . . . . . .1
Section 3. Notice of Shareholders Meetings . . . . . . . .2
Section 4. Place of Meeting. . . . . . . . . . . . . . . .2
Section 5. Record Date . . . . . . . . . . . . . . . . . .2
Section 6. Quorum. . . . . . . . . . . . . . . . . . . . .2
Section 7. Voting. . . . . . . . . . . . . . . . . . . . .2
Section 8. Proxies . . . . . . . . . . . . . . . . . . . .3
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. . . . . . . . . . . . . . . . .3
Section 2. Election of Directors . . . . . . . . . . . . 3
Section 3. Number, Tenure and Qualifications . . . . . . .3
Section 4. Regular Meetings. . . . . . . . . . . . . . . .3
Section 5. Special Meetings. . . . . . . . . . . . . . . .3
Section 6. Meetings by Telephone . . . . . . . . . . . . .4
Section 7. Quorum. . . . . . . . . . . . . . . . . . . . .4
Section 8. Manner of Acting. . . . . . . . . . . . . . . .4
Section 9. Vacancies . . . . . . . . . . . . . . . . . . .4
Section 10. Removals. . . . . . . . . . . . . . . . . . . .4
Section 11. Resignations. . . . . . . . . . . . . . . . . .5
Section 12. Presumption of Assent . . . . . . . . . . . . .5
Section 13. Compensation. . . . . . . . . . . . . . . . . .5
Section 14. Informal Action by Directors. . . . . . . . . .5
Section 15. Chairman. . . . . . . . . . . . . . . . . . . .5
<PAGE>
ARTICLE IV. DIVISIONS OF THE CORPORATION
Section 1. Operation of Divisions. . . . . . . . . . . . .6
Section 2. Advisory Board. . . . . . . . . . . . . . . . .6
Section 3. Officers of the Divisions . . . . . . . . . . .6
Section 4. Duties of Officers of Divisions . . . . . . . .6
Section 5. Term of Office, Resignation and Removal . . . .7
Section 6. Authorized Signatures and Checking Accounts . .7
ARTICLE V. OFFICERS
Section 1. Number. . . . . . . . . . . . . . . . . . . . .7
Section 2. Election and Term of Office . . . . . . . . . .7
Section 3. Resignations. . . . . . . . . . . . . . . . . .8
Section 4. Removals. . . . . . . . . . . . . . . . . . . .8
Section 5. Vacancies . . . . . . . . . . . . . . . . . . .8
Section 6. President . . . . . . . . . . . . . . . . . . .8
Section 7. Executive Vice-President. . . . . . . . . . . .8
Section 8. Vice-Presidents . . . . . . . . . . . . . . . .9
Section 9. Secretary . . . . . . . . . . . . . . . . . . .9
Section 10. Treasurer . . . . . . . . . . . . . . . . . . .9
Section 11. Assistant Secretaries and Assistant
Treasurers . . . . . . . . . . . . . . . . 10
Section 12. General Manager . . . . . . . . . . . . . . . 10
Section 13. Other Officers. . . . . . . . . . . . . . . . 11
Section 14. Salaries. . . . . . . . . . . . . . . . . . . 11
Section 15. Surety Bonds. . . . . . . . . . . . . . . . . 11
ARTICLE VI. COMMITTEES
Section 1. Executive Committee . . . . . . . . . . . . . 11
Section 2. Other Committees. . . . . . . . . . . . . . . 11
ARTICLE VII. CONTRACTS, LOANS, DEPOSITS AND CHECKS
Section 1. Contracts . . . . . . . . . . . . . . . . . . 12
Section 2. Loans . . . . . . . . . . . . . . . . . . . . 12
Section 3. Deposits. . . . . . . . . . . . . . . . . . . 12
Section 4. Checks and Drafts . . . . . . . . . . . . . . 12
Section 5. Bonds and Debentures. . . . . . . . . . . . . 12
<PAGE>
ARTICLE VIII. CAPITAL STOCK
Section 1. Certificates of Shares. . . . . . . . . . . . 13
Section 2. Transfers of Shares . . . . . . . . . . . . . 13
Section 3. Transfer Agent and Registrar. . . . . . . . . 13
Section 4. Lost or Destroyed Certificates. . . . . . . . 14
Section 5. Consideration for Shares. . . . . . . . . . . 14
Section 6. Registered Shareholders . . . . . . . . . . . 14
ARTICLE IX. INDEMNIFICATION
Section 1. Indemnification Against Third Party Claims. . 14
Section 2. Indemnification Against Derivative Claims . . 15
Section 3. Rights to Indemnification . . . . . . . . . . 15
Section 4. Authorization of Indemnification. . . . . . . 15
Section 5. Advancement of Expenses . . . . . . . . . . . 16
Section 6. Indemnification by Court Order. . . . . . . . 16
Section 7. Insurance . . . . . . . . . . . . . . . . . . 16
Section 8. Settlement by Corporation . . . . . . . . . . 17
ARTICLE X. WAIVER OF NOTICE. . . . . . . . . . . . . . . . 17
ARTICLE XI. AMENDMENTS. . . . . . . . . . . . . . . . . . . 17
ARTICLE XII. FISCAL YEAR . . . . . . . . . . . . . . . . . . 17
ARTICLE XIII. DIVIDENDS . . . . . . . . . . . . . . . . . . . 18
ARTICLE XIV. CORPORATE SEAL. . . . . . . . . . . . . . . . . 18<PAGE>
RESTATED BYLAWS
OF
GOOD TIMES RESTAURANTS INC.
ARTICLE I
NAME, REGISTERED OFFICE AND REGISTERED AGENT
Section 1. Name. The name of this corporation is Good
Times Restaurants Inc.
Section 2. Registered Office and Registered Agent. The
address of the registered office of this corporation is One East
First, Suite 1600, Reno, Nevada 89501. The name of the registered
agent of this corporation at that address is Corporation Trust
Company. The corporation shall at all times maintain a registered
office. The locations of the registered office may be changed by
the Board of Directors. The corporation may also have offices in
such other places within or without the State of Nevada as the
Board may from time to time designate.
ARTICLE II
SHAREHOLDERS MEETINGS
Section 1. Annual Meetings. The annual meeting of the
shareholders of the corporation shall be held at such place within
or without the State of Nevada and at such time as the Board of
Directors shall determine in compliance with these Bylaws. If such
day is a legal holiday, the meeting shall be on the next business
day. This meeting shall be for the election of Directors and for
the transaction of such other business as may properly come before
it.
Section 2. Special Meetings. Special meetings of
shareholders, other than those regulated by statute, may be called
at any time by the Chairman of the Board, the President, any two
Directors or the holder or holders of at least 25 percent of the
outstanding shares of Series A Convertible Preferred Stock, and
must be called by the President upon written request of the holders
of ten percent of the outstanding shares of capital stock entitled
to vote at such special meeting. Written notice of such meeting
stating the place, the date and hour of the meeting, the purpose or
purposes for which it is called, and the name of the person by whom
or at whose direction the meeting is called shall be given. Such
notice shall be given to each shareholder of record in the same
manner as notice of the annual meeting. No business other than
that specified in the notice of the meeting shall be transacted at
any such special meeting.
Section 3. Notice of Shareholders Meetings. The
Secretary shall give written notice stating the place, date and
hour of the meeting and, in the case of a special meeting, the
purpose(s) for which the meeting is called, which shall be
delivered not less than ten nor more than sixty days prior to the
date of the meeting, either personally or by mail to each
shareholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the shareholder at his address as
it appears on the stock transfer books of the corporation, with
postage thereon prepaid.
Section 4. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Nevada,
as the place of meeting for any annual meeting or for any special
meeting called by the Board of Directors. A waiver of notice
signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Nevada,
as the place for the holding of such meeting. If no designation is
made, or if a special meeting is called by other than the Board of
Directors, the place of meeting shall be the principal business
office of the corporation.
Section 5. Record Date. The Board of Directors may fix
a date not less than ten nor more than sixty days prior to any
meeting as the record date for the purpose of determining
shareholders entitled to notice of and to vote at any such meeting
of the shareholders. The stock transfer books may be closed by the
Board of Directors for a stated period not to exceed sixty days for
the purpose of determining shareholders entitled to receive payment
of any dividend, or in order to make a determination of
shareholders for any other purpose.
Section 6. Quorum. Except as otherwise provided in
these Bylaws or the Articles of Incorporation, a majority of the
votes represented by the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders. If less than
a majority of such votes are represented at any such meeting, a
majority of the votes so represented may adjourn the meeting from
time to time without further notice. At a meeting resumed after
any such adjournment at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders
present at any duly assembled meeting at which a quorum is present
may continue to transact business until adjournment,
notwithstanding the withdrawal of shareholders in such number that
less than a quorum remain.
Section 7. Voting. The holder of an outstanding share
entitled to vote at any meeting may vote at such meeting in person
or by proxy. Every shareholder of Common Stock shall be entitled
to one vote for each share standing in his name on the records of
the corporation upon each matter submitted to a vote at a meeting
of shareholders. Every holder of Series A Convertible Preferred
Stock shall have such number of votes per share on each matter
submitted to a vote at a meeting of shareholders as shall equal the
number of shares of Common Stock (including fractions of a share)
into which each share of Series A Convertible Preferred Stock would
be convertible based on the conversion price then in effect, as
provided in the terms of the Series A Preferred Stock set forth in
the Articles of Incorporation. All shareholder actions shall be
determined by a majority of the votes cast at any meeting of
shareholders by the holders or proxies of shares entitled to vote
thereon.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by
the shareholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the Secretary of the corporation before
or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise
provided in the proxy.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of
the corporation shall be managed by its Board of Directors. The
Board of Directors may adopt such rules and regulations for the
conduct of its meetings and the management of the corporation as it
deems proper.
Section 2. Election of Directors. The Board of Directors
shall be elected by the shareholders at the annual meeting, or if
not so elected, at a special meeting called for such purpose.
Notwithstanding the foregoing, the holders of the Series A
Convertible Preferred Stock voting together, separately as a class,
shall have the right to elect two Directors to the Board of
Directors, one of whom shall have the right to serve as the
Chairman of the Board at his or her discretion. At any meeting (or
in a written consent in lieu thereof) held for the purpose of
electing Directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of
Series A Convertible Preferred Stock then outstanding shall
constitute a quorum of the Series A Convertible Preferred Stock for
the election of Directors to be elected solely by the holders of
the Series A Convertible Preferred Stock or jointly by the holders
of the Series A Convertible Preferred Stock and the Common Stock.
Section 3. Number, Tenure and Qualifications. The
number of Directors of the corporation shall be as determined by
the Board of Directors in accordance with the Articles of
Incorporation, but shall not be greater than seven unless an
increase in such number is approved by the holders of two-thirds of
the outstanding shares of Series A Convertible Preferred Stock.
Each Director shall hold office until the next annual meeting of
shareholders and until his successor shall have been duly elected
and qualified. Directors need not be residents of the State of
Nevada or shareholders of the corporation.
Section 4. Regular Meetings. A regular meeting of the
Board of Directors shall be held without other notice than by this
Bylaw, immediately following and at the same place as the annual
meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional
regular meetings without other notice than such resolution.
Section 5. Special Meetings. Special Meetings of the
Board of Directors may be called by order of the Chairman of the
Board, the President, any two Directors or the holder or holders of
at least 25 percent of the outstanding shares of Series A
Convertible Preferred Stock. The Secretary shall give notice of
the time and place of each special meeting by mailing the same at
least two days before the meeting or by telephoning or telegraphing
the same at least one day before the meeting to each Director.
Section 6. Meetings by Telephone. Any meeting of the
Board of Directors, regular or special, may be held by conference
telephone call.
Section 7. Quorum. A majority of the members of the
Board of Directors shall constitute a quorum for the transaction of
business, but less than a quorum may adjourn any meeting from time
to time until a quorum shall be present, whereupon the meeting may
be held, as adjourned, without further notice. At any meeting at
which every Director shall be present, even though without any
notice, any business may be transacted.
Section 8. Manner of Acting. At all meetings of the
Board of Directors, each Director shall have one vote. The act of
a majority present at a meeting shall be the act of the Board of
Directors, provided a quorum is present.
Section 9. Vacancies. A vacancy in any directorship
elected solely by the holders of the Series A Convertible Preferred
Stock shall be filled only by vote or written consent of the
holders of the Series A Convertible Preferred Stock in accordance
with Section 2 hereof, and any vacancy in any directorship elected
jointly by the holders of the Series A Convertible Preferred Stock
and the Common Stock shall be filled only by vote or written
consent of holders of the Series A Convertible Preferred Stock and
the Common Stock in accordance with Section 2 hereof.
Section 10. Removals. Directors may be removed at any
time with or without cause by vote of the shareholders holding a
majority of the shares outstanding which are at the time entitled
to vote on the election of the Director to be removed. Thus, the
Directors elected by the holders of the Series A Convertible
Preferred Stock may be removed only by a vote of the majority of
the outstanding shares of such stock and such vacancy shall be
filled in the manner specified in Section 9 above. No reduction of
the authorized number of Directors shall have the effect of
removing any Director prior to the expiration of his term of
office. Notwithstanding the foregoing, the holders of the Series
A Convertible Preferred Stock, voting as a separate class, shall be
entitled to remove with or without cause any or all of the
Directors and to elect four Directors to the Board of the
corporation if the following events occur: (1) the Board shall fail
to declare an Accruing Dividend (as such term is defined in the
terms of the Series A Convertible Preferred Stock set forth in the
Articles of Incorporation) when due if there is adequate surplus to
do so, unless the Board of Directors reasonably determines that the
payment of a cash dividend would jeopardize the corporation's
ability to meet its current and reasonably foreseeable obligations,
including reasonable reserves therefor; (2) the corporation files
a petition in bankruptcy, is adjudged bankrupt or insolvent, makes
an assignment for the benefit of creditors, applies to or petitions
any tribunal for the appointment of a receiver, intervenor or
trustee for all or a substantial part of its assets, or a
proceeding under any bankruptcy law or statute shall have commenced
and not been dismissed within sixty days; or (3) if there has been
a material breach of any agreement between the corporation and the
holders of the Series A Convertible Preferred Stock and the
corporation fails to remedy such breach within 14 days after
receiving notice of such breach or, if such breach cannot
reasonably be cured and the corporation continuously and diligently
proceeds to remedy such breach, within thirty days after receiving
notice of such breach.
Section 11. Resignations. A Director may resign at any
time by delivering written notification thereof to the President or
Secretary of the corporation. Resignation shall become effective
upon its acceptance by the Board of Directors; provided, however,
that if the Board of Directors has not acted thereon within ten
days after the date of its delivery, the resignation shall be
deemed accepted upon the tenth day.
Section 12. Presumption of Assent. A Director of the
corporation who is present at a meeting of the Board of Directors
at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the
corporation immediately after adjournment of the meeting. Such
right of dissent shall not apply to a Director who voted in favor
of such action.
Section 13. Compensation. By resolution of the Board of
Directors, the Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors, and may be
paid a fixed sum for attendance at each such meeting or a stated
salary as Director. No such payment shall preclude any Director
from serving the corporation in any other capacity and receiving
compensation therefor.
Section 14. Informal Action by Directors. Any action
required to be taken at a meeting of Directors or any action which
may be taken at a meeting of Directors may be taken without a
meeting by a written consent, setting forth the action so taken,
signed by all of the Directors of the corporation.
Section 15. Chairman. If one of the Directors elected
solely by the holders of the Series A Convertible Preferred Stock
does not elect to serve as Chairman of the Board, the Board may
elect from its own number a Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the Board of Directors
and shall perform such other duties as may be prescribed from time
to time by the Board of Directors.
ARTICLE IV
DIVISIONS OF THE CORPORATION
Section 1. Operation of Divisions. The Board of
Directors shall have power to establish one or more operating
divisions of the corporation. Each division of the corporation
shall have such authority, responsibilities, and duties as may be
delegated to it from time to time by the Board of Directors. Each
division of the corporation shall adopt Rules of Procedure for the
conduct of its affairs not inconsistent with the Articles of
Incorporation and Bylaws of the corporation. Such Rules of
Procedure shall become effective when approved by the Board of
Directors.
Section 2. Advisory Board. The Board of Directors of
the corporation may appoint individuals who may, but need not, be
Directors, officers or employees of the corporation, to serve as
members of an Advisory Board to one or more of the divisions of the
corporation. The members of any such Advisory Board shall keep
minutes of their meetings which shall be submitted to the Board of
Directors of the corporation. The term of office of any member of
the Advisory Board shall be at the pleasure of the Board of
Directors of the corporation. The function of such Advisory Board
shall be to advise with respect to the affairs of the operating
divisions of the corporation to which it is appointed.
Section 3. Officers of the Divisions. The divisions of
the corporation shall each have a President and such Vice-Presidents as the
Board of Directors may appoint. The Secretary and Treasurer of the corporation
shall also be deemed the Secretary and Treasurer of each division.
Section 4. Duties of Officers of Divisions. Any
employee designated as an officer of a division shall have such
authority, responsibilities, and duties with respect to the
applicable division corresponding to those normally vested in the
comparable officer of the corporation by these Bylaws, subject to
such limitations as may be imposed by the Board of Directors, the
Articles of Incorporation or by these Bylaws. The President of a
division may sign, execute and deliver in the name of such division
only such contracts, agreements or other documents as may be
prescribed from time to time by the President of the corporation or
the Board of Directors. The designation of any individual as
President or Vice-President of any division of the corporation
shall not be permitted to conflict in any way with any executive or
administrative authority of any officer of the corporation
established from time to time by the Board of Directors of the
corporation. The President of each division shall report directly
to the President and Chief Executive Officer of the corporation.
The President of a division, upon written approval of the President
of the corporation, may appoint or remove such agents or employees
of a division as may, from time to time, become necessary or useful
to the operation of such division.
Section 5. Term of Office, Resignation and Removal.
Each officer of a division shall hold office until his successor
shall have been duly appointed by the Board of Directors, or until
his death, or until he shall resign. Any officer of a division may
resign at any time by delivery of a written resignation either to
the President of the corporation, the Secretary of the corporation
or to the Board of Directors. Such resignation shall take effect
upon delivery. Any officer of the division may be removed from
office only by the Board of Directors. Such officer shall be
removed when in the sole judgment of the Board of Directors the
best interests of the division or the corporation will be served
thereby. Any such removal shall require a majority vote of the
Board of Directors.
Section 6. Authorized Signatures and Checking Accounts.
The Board of Directors may authorize each division to have a
separate checking account. Any check issued by or for the benefit
of any division shall require at least two signatures. The
corporate or divisional officers authorized to sign such checks of
any division shall be the President of such division, the President
of the corporation and the Secretary of the corporation.
ARTICLE V
OFFICERS
Section 1. Number. The corporate officers shall be a
President, no Vice-Presidents or one or more Vice-Presidents as
determined from time to time by the Board of Directors, a Secretary
and a Treasurer, each of whom shall be elected by a majority of the
Board of Directors. Such other corporate officers and assistant
officers as may be deemed necessary may be elected or appointed by
the Board of Directors. In its discretion, the Board of Directors
may leave unfilled for any such period as it may determine any
corporate office except those of President and Secretary. Any two
or more corporate offices may be held by the same person, except
the offices of President and Secretary. Corporate officers need
not be Directors or shareholders of the corporation.
Section 2. Election and Term of Office. The corporate
officers to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the
shareholders. If the election for corporate officers shall not be
held at such meeting, such election shall be held as soon
thereafter as convenient. Each corporate officer shall hold office
until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided.
Section 3. Resignations. Any corporate officer may
resign at any time by delivering a written resignation either to
the corporate President or to the corporate Secretary. Unless
otherwise specified therein, such resignation shall take effect
upon delivery.
Section 4. Removals. Any corporate officer or agent may
be removed by the Board of Directors, with or without cause,
whenever in its judgment the best interests of the corporation
would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Election or appointment of a corporate officer or agent shall not
of itself create contract rights. Any such removal shall require
a majority vote of the Board of Directors, exclusive of the
corporate officer in question if he is also a Director.
Section 5. Vacancies. A vacancy in any corporate office
because of death, resignation, removal, disqualification or
otherwise, or if a new corporate office shall be created, may be
filled by the Board of Directors for the unexpired portion of the
term.
Section 6. President. The President shall be the chief
executive and administrative officer of the corporation. He shall
preside at all meetings of the shareholders and, in the absence of
the Chairman of the Board, at meetings of the Board of Directors.
He shall exercise such duties as customarily pertain to the office
of President and shall have general and active supervision of the
property, business, offices and affairs of the corporation and each
division. He may appoint officers, agents, or employees on the
corporate or division level other than those appointed by the Board
of Directors. He may sign, execute and deliver in the name of the
corporation powers of attorney, contracts, bonds and other
obligations, and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or by these
Bylaws.
Section 7. Executive Vice-President. The Executive
Vice-President shall be the chief executive and administrative
officer of the corporation in the absence of the President, and in
such absence shall be vested with all rights, powers, privileges
and obligations of the President as more fully set forth in Section
6 of this Article V. In addition, he may sign, execute and deliver
in the name of the corporation, powers of attorney, contracts,
bonds and other obligations when the President is present but
unavailable for the execution of such documents, and he shall
perform such other duties as may be prescribed from time to time by
the Board of Directors, the President or the Bylaws.
Section 8. Vice-Presidents. Vice-Presidents shall have
such powers and perform such duties as may be assigned to them by
the Board of Directors or by the President. In the absence or
disability of the President, the Vice-President designated by the
Board or by the President shall perform the duties and exercise the
powers of the President. A Vice-President may sign and execute
contracts and other obligations pertaining to the regular course of
his duties.
Section 9. Secretary. The Secretary shall also be
deemed the Secretary of each of the divisions. The Secretary
shall, subject to the direction of the President, Executive Vice-President, or a
designated Vice-President, keep the minutes of all
meetings of the shareholders and of the Board of Directors and, to
the extent ordered by the Board of Directors or the President, the
minutes of meetings of all divisions and committees. He shall
cause notice to be given of meetings of shareholders, of the Board
of Directors and of any committee appointed by the Board. He shall
have custody of the corporate seal and general charge of the
records, documents and papers of the corporation and each division
not pertaining to the performance of the duties vested in other
officers, which records, documents and papers shall at all
reasonable times be open to examination by any Director. He may
sign or execute contracts with the President, Executive Vice-President or Vice-
Presidents thereunto authorized in the name of
the corporation and affix the seal of the corporation thereto,
provided, however, that he may not simultaneously act both in the
capacity of Secretary and that of Executive Vice-President or Vice-President
upon the execution of such documents. He shall perform
such other duties as may be prescribed from time to time by the
Board of Directors or by these Bylaws. He shall be sworn to the
faithful discharge of his duties. If necessary, Assistant
Secretaries shall assist the Secretary and shall keep and record
such minutes of meetings as shall be directed by the Board of
Directors.
Section 10. Treasurer. The Treasurer shall, subject to
the direction of the President, Executive Vice-President or a
designated Vice-President, have general custody and control of the
collection and disbursement of funds of the corporation and each
division. He shall endorse on behalf of the corporation and each
division for collection checks, notes and other obligations, and
shall deposit the same to the credit of the corporation or the
division in such bank(s) or depositories as the Board of Directors
may designate. He may sign, with the President or such other
persons as may be designated for the purpose by the Board of
Directors, all bills of exchange or promissory notes of the
corporation or any division, provided, however, that he may not
simultaneously act both in the capacity of Treasurer and that of
Executive Vice-President or Vice-President upon the execution of
such documents. He shall enter or cause to be entered regularly in
the books of the corporation or any division a full and accurate
account of all monies received and paid by him or under his
direction on account of the corporation or such division. He shall
at all reasonable times exhibit his books and accounts to any
Director of the corporation upon timely application at the office
of the corporation during business hours, and whenever required by
the Board of Directors or the President, he shall render a
statement of his accounts. He shall perform such other duties as
may be prescribed from time to time by the Board of Directors or by
the Bylaws. If necessary, Assistant Treasurers shall assist the
Treasurer and shall perform such duties as shall be directed by the
Board of Directors. He shall give bond for the faithful
performance of his duties in such sum and with or without such
surety as shall be required by the Board of Directors.
Section 11. Assistant Secretaries and Assistant
Treasurers. The Board of Directors may appoint such Assistant
Secretaries and Assistant Treasurers as may be necessary for the
expedient discharge of the affairs of the corporation or any
division. The Assistant Secretaries and Assistant Treasurers shall
be authorized to perform any of the duties of the Secretary or
Treasurer, respectively, in the absence of the Secretary or
Treasurer, or in any situation where the Secretary or Treasurer may
be acting in another capacity such as Executive Vice-President or
Vice-President.
Section 12. General Manager. The Board of Directors may
employ and appoint a General Manager who may or may not be one of
the officers or Directors of the corporation. He shall be the
chief operating officer of the corporation, and subject to the
direction of the Board of Directors and of the President, shall
have general charge of the business operations of the corporation
and general supervision over its employees and agents. He may be
given the exclusive management of the business of the corporation
in any or all of its dealings, but at all times he shall be subject
to the control of the Board of Directors or of the Executive
Committee. He may employ all employees of the corporation, or
delegate such employment to subordinate officers or division
chiefs, and he may have the authority to discharge any person so
employed. He shall make a report to the President and to the Board
of Directors quarterly, or more often if required to do so, setting
forth the result of the operations under his charge, together with
suggestions looking to the improvement and betterment of the
condition of the corporation. He may perform such other duties as
the Board of Directors shall require.
Section 13. Other Officers. Other officers shall
perform such duties and have such powers as may be assigned to them
by the Board of Directors.
Section 14. Salaries. Salaries or other compensation of
the corporate officers and the officers of any division of the
corporation shall be fixed from time to time by the Board of
Directors, except that the Board of Directors may delegate to any
person or group of persons the power to fix the salaries or other
compensation of any such subordinate officers or agent. No officer
shall be prevented from receiving any such salary or compensation
because he is also a Director of the corporation.
Section 15. Surety Bonds. If the Board of Directors
shall so require, any corporate or division officer or agent shall
execute to the corporation a bond in such sums and with such surety
or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the corporation or the
applicable division, including his responsibility for negligence
and the accounting for all property, monies or securities of the
corporation or a division which may come into his hands.
ARTICLE VI
COMMITTEES
Section 1. Executive Committee. The Board of Directors
may appoint from among its members an Executive Committee of not
less than two nor more than five members, one of whom shall be the
President, and shall designate one of such members as Chairman.
The Board may also designate one or more of its members as
alternates to serve as members on the Executive Committee in the
absence or disability of a regular member(s). The Board of
Directors reserves to itself alone the power to declare dividends,
issue stock, recommend to shareholders any action requiring their
approval, change the membership of any committee at any time, fill
vacancies therein and disband any committee either with or without
cause at any time. Subject to the foregoing limitations, the
Executive Committee shall possess and exercise all other powers of
the Board of Directors during the intervals between meetings.
Section 2. Other Committees. The Board of Directors may
also appoint from among its own members such other committees as
the Board of Directors may determine. Such committees shall in
each case consist of not less than two Directors, and shall have
such powers and duties and shall from time to time be prescribed by
the Board. The President shall be a member ex officio of each
committee appointed by the Board of Directors. A majority of the
members of any committee may fix its rules of procedure.
ARTICLE VII
CONTRACTS, LOANS, DEPOSITS AND CHECKS
Section 1. Contracts. The Board of Directors may
authorize any officer(s) or agent(s) to enter into any contract or
execute and deliver any instrument in the name and on behalf of the
corporation, and such authority may be either general or confined
to specific instances.
Section 2. Loans. No loan(s) or advance(s) shall be
contracted on behalf of the corporation, no negotiable paper or
other evidence of its obligation under any loan or advance shall be
issued in its name, and no property of the corporation shall be
mortgaged, pledged, hypothecated or transferred as security for the
payment of any loan, advance, indebtedness or liability of the
corporation unless and except as authorized by the Board of
Directors. Any such authorization may be either general or
confined to specific instances.
Section 3. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the
credit of the corporation in such banks, trust companies or other
depositories as the Board of Directors may select, or as may be
selected by any officer or agent so authorized by the Board of
Directors.
Section 4. Checks and Drafts. All notes, drafts,
acceptances, checks, endorsements and evidences of indebtedness of
the corporation shall be signed by such officer(s) or such agent(s)
of the corporation and in such manner as the Board of Directors
from time to time may determine. Endorsements for deposit to the
credit of the corporation in any of its duly authorized
depositories shall be made in such manner as the Board of Directors
from time to time may determine.
Section 5. Bonds and Debentures. Every bond or
debenture issued by the corporation shall be evidenced by an
appropriate instrument which shall be signed by the President or a
Vice-President and by the Treasurer or by the Secretary. The seal
may be a facsimile, engraved or printed. Where such bond or
debenture is to be authenticated with the manual signature of an
authorized officer of the corporation or other trustee designated
by the indenture of trust or other agreement under which such
security is issued, the signature of any of the corporation's
officers named thereon may be facsimile. In case any officer who
signed, or whose facsimile signature has been used on any such bond
or debenture, shall cease to be an officer of the corporation, such
bond or debenture may nevertheless be adopted by the corporation
and issued and delivered as though the person who signed it or
whose facsimile signature has been used thereon had not ceased to
be such officer.
ARTICLE VIII
CAPITAL STOCK
Section 1. Certificates of Shares. The shares of the
corporation shall be represented by certificates prepared by the
Board of Directors and signed by the President or the Vice-President and by the
Secretary, and sealed with the seal of the
corporation or a facsimile. The signatures of such officers upon
a certificate may be facsimiles if the certificate is countersigned
by a transfer agent or registered by a registrar other than the
corporation itself or one of its employees. All certificates for
shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued,
with the number of shares and the date of issue, shall be entered
on the stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled. No
new certificates shall be issued until the former certificate for
a like number of shares shall have been surrendered and cancelled,
except that in case of a lost, destroyed or mutilated certificate,
a new one may be issued therefor upon such terms of indemnity to
the corporation as the Board of Directors may prescribe.
Section 2. Transfers of Shares. Transfers of shares of
the corporation shall be made only on the stock transfer books of
the corporation by the holder of record thereof or by his legal
representative, or by his attorney thereunto authorized by a power
of attorney duly executed and such representative or attorney shall
furnish proper evidence of his authority to so transfer the shares
to the Secretary of the corporation upon the surrender for
cancellation of the certificate for such shares. The person in
whose name shares stand on the stock transfer books of the
corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
Section 3. Transfer Agent and Registrar. The Board of
Directors shall have power to appoint one or more transfer agents
and registrars, who may also be employees of the corporation, for
the transfer and registration of certificates of stock of any
class, and may require that stock certificates shall be
countersigned and registered by one or more of such transfer agents
and registrars.
Section 4. Lost or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued to replace any
certificate theretofore issued by the corporation and alleged to
have been lost or destroyed if the new owner makes an affidavit
that the certificate is lost or destroyed. The Board of Directors
may, at its discretion, require the owner of such certificate or
his legal representative to give the corporation a bond in such sum
and with such sureties as the Board of Directors may direct to
indemnify the corporation and transfer agents and registrars, if
any, against claims that may be made on account of the issuance of
such new certificates. A new certificate may be issued without
requiring any bond.
Section 5. Consideration for Shares. The capital stock
of the corporation shall be issued for such consideration as shall
be fixed from time to time by the Board of Directors, but in no
event shall such value be less than the par value of such shares.
In the absence of fraud, the determination of the Board of
Directors as to the value of any property or services received in
full or partial payment for shares shall be conclusive.
Section 6. Registered Shareholders. The corporation
shall be entitled to treat the holder of record of any share or
shares of stock as the holder thereof in fact and shall not be
bound to recognize any equitable or other claim to or interest in
the shares.
ARTICLE IX
INDEMNIFICATION
Section 1. Indemnification Against Third Party Claims.
The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he is or was
a Director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a Director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests if the corporation, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and that, with respect to
any criminal action or proceeding, he had reasonable cause to
believe that his conduct was unlawful.
Section 2. Indemnification Against Derivative Claims.
The corporation shall further indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a Director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if
he acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation;
provided that indemnification shall not be made for any claim,
issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of
all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses as the court
deems proper.
Section 3. Rights to Indemnification. To the extent
that a Director, officer, employee or agent of the corporation has
been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or
in defense of any claim, issue or matter therein, he shall be
indemnified by the corporation against expenses, including
attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
Section 4. Authorization of Indemnification. Any
indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the Director, officer,
employee or agent is proper in the circumstances. The
determination shall be made: (a) by the shareholders, (b) by the
Board of Directors by majority vote of a quorum consisting of
Directors who were not parties to the act, suit or proceeding, (c)
if a majority vote of a quorum consisting of Directors who were not
parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion, or (d) if a quorum consisting
of Directors who were not parties to the act, suit or proceeding
cannot be obtained, by independent legal counsel in a written
opinion.
Section 5. Advancement of Expenses. The expenses of
officers and Directors incurred in defending a civil or criminal
action, suit or proceeding, by reason of the fact that he was a
Director or officer of the corporation, shall be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Director or officer to repay the
amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection 5 do not affect any
rights to advancement of expenses to which corporate personnel
other than Directors and officers may be entitled under any
contract or otherwise by law.
Section 6. Indemnification by Court Order. The
indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section (a) does not exclude
any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under these Articles of
Incorporation or the Bylaws of the corporation, or any other
agreement, vote of shareholders or disinterested Directors or
otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection
2 hereof or for the advancement of the expenses made pursuant to
subsection 5 hereof, may not be made to or on behalf of any
Director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a
knowing violation of the law and was material to the cause of
action and (b) continues for a person who has ceased to be a
Director, officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a person.
Section 7. Insurance. The Board of Directors may, in
its discretion, direct that the corporation purchase and maintain
insurance on behalf of any person who is or was a Director,
officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a Director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status
as such, whether or not the corporation would have the power to
indemnify him against liability under the provisions of this
Section.
Section 8. Settlement by Corporation. The right of any
person to be indemnified shall be subject always to the right of
the corporation by the Board of Directors, in lieu of such
indemnification, to settle any such claim, action, suit or
proceeding at the expense of the corporation by the payment of the
amount of such settlement and the costs and expenses incurred in
connection therewith.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any
shareholder or Director of the corporation under the provision of
these Bylaws or under the provisions of the Articles of
Incorporation or under the provisions of the laws of the State of
Nevada, a waiver thereof in writing signed by the person(s)
entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
Attendance at any meeting shall constitute a waiver of notice of
such meetings, except where attendance is for the express purpose
of objecting to the legality of that meeting.
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended, repealed, or new
bylaws adopted by a majority vote of the entire Board of Directors
at any regular or special meeting. Any bylaw adopted by the Board
of Directors may be repealed or changed by a majority vote of the
shareholders.
ARTICLE XII
FISCAL YEAR
The fiscal year end of the corporation shall be fixed and
may be varied by resolution of the Board of Directors.
ARTICLE XIII
DIVIDENDS
The Board of Directors may at any regular or special
meeting, as it deems advisable, declare dividends payable out of
the surplus of the corporation.
ARTICLE XIV
CORPORATE SEAL
The corporation shall have an official seal which shall
bear the name of the corporation and the state and year of
incorporation.
These Restated Bylaws were adopted for the corporation by
the Board of Directors on the 7th day of November, 1997.
GOOD TIMES RESTAURANTS INC.
AMENDMENT AND AGREEMENT REGARDING
SERIES A CONVERTIBLE PREFERRED STOCK
This Amendment and Agreement Regarding Series A Convertible
Preferred Stock ("Amendment") is dated this 3rd day of
November, 1997, effective as of October 31, 1997, by and between
Good Times Restaurants Inc. (the "Company") and The Bailey Company
("Bailey").
RECITALS
A. Bailey currently owns all of the outstanding shares of
the Company's Series A Convertible Preferred Stock consisting of
1,000,000 shares (the "Preferred Shares"), which shares were
purchased by Bailey pursuant to the terms and conditions of the
Series A Convertible Preferred Stock Purchase Agreement dated May
31, 1996, as amended by the First Amendment to Series A Convertible
Preferred Stock Purchase Agreement dated effective as of May 31,
1996 (the "Agreement"). All capitalized and undefined terms herein
shall have the same meaning as in the Agreement.
B. Pursuant to the Agreement, the Preferred Shares are
convertible into common stock of the Company at various conversion
prices depending upon the number of Preferred Shares being
converted and the date of conversion.
C. The Company desires to obtain financing of at least
$2,000,000 on acceptable terms prior to April 30, 1998
("Financing"), the proceeds of which shall be used by the Company
for the development of additional restaurants and for advertising
and other Company expenses.
D. The Company and Bailey desire to modify and amend the
conversion rights of the Preferred Shares in consideration of
Bailey's agreement to consider in its sole and absolute discretion
assisting the Company to obtain its Financing as set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
Company and Bailey agree as follows:
1. Bailey hereby agrees to review all information provided
to it by the Company in connection with any Financing and it shall
consider in its sole and absolute discretion assisting the Company
with such Financing upon terms and conditions to be mutually
agreeable between the Company and Bailey. Notwithstanding the
foregoing, Bailey shall have no obligation to assist the Company
with any Financing whatsoever.
2. In consideration of Bailey's agreement in paragraph 1
above, the conversion periods and the conversion prices with
respect to the Preferred Shares as set forth in the Agreement are
hereby amended as follows:
Maximum Number of
Conversion Period Preferred Shares Conversion Price
October 1, 1997 - 1,000,000 $0.46875
April 30, 1998
May 1, 1998 -
April 30, 1999 1,000,000* $0.56875
May 1, 1999 and
thereafter 1,000,000* the greater of (i)
the Dividend Conversion
Rate at the time of such
conversion, and (ii)
$0.46875
* To the extent not previously converted.
3. If Bailey does not assist the Company in obtaining its
Financing, and if Bailey converts some or all of the Preferred
Shares on or before April 30, 1998 at the $0.46875 conversion
price as set forth above, then any dividend shall not be paid or
accrue (or to the extent already paid shall be refunded) from and
after October 1, 1997 with respect to the first 500,000 Preferred
Shares (or any portion thereof) converted and from and after
January 1, 1998 with respect to the next 250,000 Preferred Shares
(or any portion thereof) converted beyond the first 500,000.
Except under the foregoing circumstances, dividends shall
continue to accrue and be payable with respect to all unconverted
Preferred Shares.
4. The Company and Bailey understand and agree that it is
impossible to determine to what extent, if any, and under what
circumstances Bailey may assist the Company in obtaining
acceptable Financing. Depending upon the terms and risks
involved in connection with any proposed assistance with a
Financing by Bailey, Bailey may require additional consideration
from the Company, including without limitation additional
amendments to the conversion rights with respect to the Preferred
Shares. The Company is not however obligated to accept any
assistance from Bailey nor is it obligated to provide Bailey with
any additional consideration in connection with any Bailey
assisted Financing.
5. Except as expressly set forth in this Amendment, all
other rights, powers, preferences, qualifications and
restrictions with respect to the Preferred Shares shall remain in
full force and effect.
6. This Amendment has been approved by the vote of the
Board of Directors of the Company without participation of the
two Company directors appointed by Bailey.
7. This Amendment may be executed in counterparts and
delivered by facsimile transmission.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Amendment effective as of October 31, 1997.
GOOD TIMES RESTAURANT INC.,
a Nevada corporation
By: /s/ Boyd E. Hoback, President
Boyd E. Hoback, President
THE BAILEY COMPANY,
a Colorado limited partnership
By: The Erie County Investment Co.,
Its General Partner
By: /s/ David E. Bailey, President
David E. Bailey, President
December 4, 1996
Kenneth Dubach
9786 North Foothills Highway
Longmont, CO 80503
Kenneth Dubach hereby agrees to indemnify and hold harmless Good Times from
and against any and all obligations, claims, demands, losses, liabilities, costs
and expenses (including reasonable attorneys fees) suffered, sustained, incurred
or required to be paid by Good Times arising out of
or in any way relating to the promissory note of Boise Co-Development Limited
Partnership ("BCDLP") dated November 3, 1995 in the original principal amount
of $254,625 and the promissory note of BCDLP dated November 3, 1995 in the
original principal amount of $104,055 or Good Times' guarantee of such notes.
Agreed and acknowledged this 10th day of December, 1996.
/s/ Kenneth Dubach
Kenneth Dubach
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO
In re:
Case No. 96-23391 DEC
ROUND THE CORNER RESTAURANTS,
INC., a Colorado corporation,
EIN: 84-0586003,
Chapter 11
Debtor-In-Possession.
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement"), is entered into
this 29th day of August, 1997, between Round The Comer
Restaurants, Inc. ("RTC"), and Good Times Restaurants, Inc.
("Good Times"), for and in consideration of the mutual covenants
contained herein and for the payment by RTC to Good Times of the
sum of three-hundred-thousand dollars ($300,000.00), and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.
RECITALS
A. RTC operates a chain of specialty restaurants along the
Front Range of Colorado,with most locations being in the greater
Denver metropolitan area.
B. On or about February October 25, 1996 RTC filed its
voluntary petition under Chapter 11 of the United States
Bankruptcy Code, Case No. 96-23391 DEC ("Case").
C. Good Times asserts it is both a secured and unsecured
creditor in the Case. Good Times status as a creditor arises
from its sale of RTC to Hot Concepts, LLC ("Hot Concepts") in
October of 1995, and various promissory notes and security
agreements executed in its favor by RTC at the time of that sale
("Sale"). Further, even after the Sale of RTC to Hot Concepts,
Good Times continued to pay monthly rent at various RTC retail
restaurant locations as it remains liable as a guarantor for the
rents due thereon.
D. Good Times may also possess a right to assert claims in
the RTC Case as a result of its status as both an unsecured and
secured creditor, for any claims w@ich may have arisen as a
result of its payments of post-petition monthly rents on RTC
retail locations, and for damages arising from RTC's rejection of
various leases during the Case.
E. The undersigned, (hereinafter collectively referred to
as the "Parties") have reached an agreement to settle all
differences which exist between them related to the Good Times
status as a creditor in the Case.
AGREEMENT
1. In conjunction with the execution of this Agreement, RTC agrees to
pay Good Times the sum of three-hundred-thousand dollars ($300,000.00),
("Funds") solely from the proceeds of a separate settlement agreement reached
with the Einstein/Noah Bagel Corporation ("Einsteins") as follows: one payment
of $80,000.00, due upon the entry of a final court order approving both this
Agreement, and the agreement to be entered into with Einsteins and the closing
on the sale of RTC's Table Mesa location to Einsteins; $110,000.00 due within
two (2) business days of RTC's receipt of the second installment payment from
Einsteins in the amount of $110,000.00, pursuant to that agreement, and
$110,000.00 due within two (2) business days of RTC's receipt of the third
$110,000.00 installment payment due from Einsteins. The Second $110,000 is
due from Einstein by no later than December 1, 1997, and the third installment
payment is due from Einsteins by no later than March 1, 1998.
2. RTC has further agreed to assume and assign to Good Times its
retail restaurant locations, including all rights, title to and interest in
the restaurant equipment used therein and Good Times shall have the right to
operate without charge under the "RTC" name and a separate motion has been
filed and noticed to creditors setting forth the terms and conditions for said
assumption and assignment, said restaurants being at the following locations:
a. Colorado Boulevard Restaurant Lease:
1550 S. Colorado Blvd.
Denver, CO 80210
b. Crossroads Mall Lease:
1600 - 28th Street
Boulder, CO 80501
The Motion regarding these restaurant locations was filed on August 4,
1997 with an objection date of August 28, 1997.
3. Upon a final Court Order approving this Agreement RTC shall transfer,
sell and assign to Good Times all of its rights, title to and interest in the
following personal property:
a. All rights, title to and interest in the restaurant equipment
used at its Aurora Mall and Westland locations, which restaurant locations are
no longer in operation;
b. All rights, title to and interest in the restaurant equipment used at
its Table Mesa location, upon the closing of the sale of said location to
Einsteins; and
c. All rights, title to and interest in one 7000 Panasonic point-of-sale
system.
4. In exchange for the above, upon a final Court Order approving this
Agreement, and upon completion of RTC's performance hereunder, including but
not limited to Good Times' receipt of the $300,000 described in paragraph 1
above, Good Times shall:
a. Waive any and all claims of any kind whatsoever it may possess
against RTC as a result of the Case or the Sale;
b. Execute any and all documents necessary to release any security
interests it may possess in any real property or personal property owned by
RTC;
C. Cancel all indebtedness which may be owed to it by RTC and mark as
paid any and all promissory notes which have been executed by RTC and return
same to RTC;
d. Withdraw any proof of claim filed in the Case;
e. Waive any claim it may possess to further payment to it by RTC under
any Plan Of Reorganization which may be filed by RTC and submitted for Court
approval in the Case;
f. Vote in support of the support any Plan Of Reorganization which may
be filed by RTC and submitted for Court approval in the Case which
incorporates the terms of this Agreement;
g. Deem any indebtedness it claims to be owed by RTC discharged in the
RTC Case.
h. Release Hot Concepts from any and all claims it may possess against
Hot Concepts;
i. Agree to indemnify RTC for any and all claims which might be asserted
against RTC and its' principals at any time now or in the future as a result
of Good Times' agreement to operate the RTC restaurant locations and
restaurant equipment referenced in Paragraph two (2) above, and to maintain at
all times liability insurance in an amount of not less than $1,000,000 per
occurrence, in support of the indemnification agreement as set forth herein.
j. Assume responsibility for payment of any and all costs, expenses and
any and all other liabilities, known or unknown, associated with the Good
Times' agreement to operate the RTC restaurant locations referenced in
Paragraph two (2) above.
5. Except for the obligations and rights set forth in this Agreement,
Good Times and RTC shall, for themselves, their successors, their assigns, and
for anyone claiming by or through them, shall, upon Court approval of this
Settlement Agreement and full performance hereunder, be deemed to have hereby
released and forever discharged each other, their officers, directors,
partners, employees, agents, representatives, successors, assigns and the
like, and their administrators an assigns, from any claims they may possess.
6. As further consideration for this Agreement, the Parties hereto
warrant that no promise or agreement that is not expressed in this Agreement
has been made to any party hereby released; in executing this release, the
Parties are not relying upon any statement or representation made by the
parties, agents or attorneys concerning any matter or thing, but are relying
solely upon their own judgment and knowledge that the within referenced
consideration is received by each party in full settlement and satisfaction of
all the aforesaid claims and demands; that in determining said consideration
there has been taken into consideration not only any ascertained or estimated
damages and expenses involved with the Case, but also the possibility that any
damages allegedly sustained may be indefinite, or the consequences not now
anticipated may result from events which have occurred.
7. As further consideration for this Agreement, the Parties acknowledge
that this Agreement is not to be construed as an admission of any allegation
of law or fact on the part of either Party, but rather is a settlement of a
disputed claim made to forgo the expense and uncertainty of litigation which
might have arisen during the Case and in the absence of this Agreement.
8. The Parties represent that they have full authority to execute this
Agreement and that this Agreement constitutes the entire agreement between the
parties and supersedes any aid all prior agreements whether oral or written as
to the subject matters hereof.
9. Promptly after the execution of this Agreement, RTC shall submit the
Agreement for Court approval, which must be obtained on or before October 15,
1997. Accordingly, all obligations and rights of the Parties to this
Agreement are contingent upon the approval of this Agreement by the United
States Bankruptcy Court in Case No. 96-23391 DEC on or before October 15,
1997.
10. All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the laws of the State of
Colorado. Jurisdiction over any dispute which may arise with respect to this
Agreement shall be proper only in the United States Bankruptcy Court for the
District of Colorado.
11. This Agreement may be executed in any number of counterparts which
when read together shall constitute one complete and binding original
Agreement. It shall be acceptable for the Parties to provide signatures
via telecopier.
DATED this 29th day of August, 1997.
ROUND THE CORNER RESTAURANTS, INC.
By: /S/ Don Beck
Don Beck, President
<PAGE>
GOOD TIMES RESTAURANTS, INC.
By: /s/ Boyd Hoback
Boyd E. Hoback, President
APPROVED AS TO FORM:
BASS & MILLER, LLP
By: /s/ William M. Bass
William M. Bass, #13650
David M. Miller, #17915
455 Sherman Street, Suite 450
Denver, Colorado 80203
Telephone: (303) 722-6936
ATTORNEYS FOR ROUND THE CORNER RESTAURANTS, INC.
COHEN, BRAME & SMITH, P.C,
By: /s/ Roger C. Cohen
Roger C. Cohen #3515
1700 Lincoln Street, Suite 1800
Denver, Colorado 80203
Telephone: (303) 837-8800
ATTORNEYS FOR GOOD TIMES RESTAURANTS, INC.
Exhibit 21.1
December 22, 1997
Good Times Drive Thru Inc., a Colorado Corporation, is the only
current subsidiary of Registrant.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Good Times Restaurants Inc.
We have audited the accompanying consolidated balance sheet of
Good Times Restaurants Inc. and subsidiaries as of September 30,
1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended
September 30, 1995 and 1994. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Good Times Restaurants Inc. and subsidiaries as of
September 30, 1995, and the results of their operations and their
cash flows for the years ended September 30, 1995 and 1994, in
conformity with generally accepted accounting principles.
Hein + Associates LLP
Denver, Colorado
December 1, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 408000
<SECURITIES> 0
<RECEIVABLES> 81000
<ALLOWANCES> 0
<INVENTORY> 51000
<CURRENT-ASSETS> 892000
<PP&E> 8289000
<DEPRECIATION> (2459000)
<TOTAL-ASSETS> 7192000
<CURRENT-LIABILITIES> 1426000
<BONDS> 0
0
10000
<COMMON> 6000
<OTHER-SE> 2877000
<TOTAL-LIABILITY-AND-EQUITY> 7192000
<SALES> 11652000
<TOTAL-REVENUES> 11865000
<CGS> 4286000
<TOTAL-COSTS> 10625000
<OTHER-EXPENSES> 2252000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (89000)
<INCOME-PRETAX> (1101000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1101000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1166000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
