UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: June 30, 1998 Commission File Number: 0-18590
GOOD TIMES RESTAURANTS INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
84-1133368
(I.R.S. Employer Identification No.)
601 CORPORATE CIRCLE, GOLDEN, CO 80401
(Address of principal executive offices) (Zip Code)
(303) 384-1400
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Total number of shares of common stock outstanding at June 30,
1998.
1,321,252 SHARES OF COMMON STOCK, .001 PAR VALUE
Form 10-QSB
Quarter Ended June 30, 1998
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - 3
June 30, 1998 and September 30, 1997
Consolidated Statements of Operations - 5
For the three months ended June 30,
1998 and 1997 and for the nine months ended
June 30, 1998 and 1997
Consolidated Statements of Cash Flow - 6
For the three months ended June 30,
1998 and 1997 and for the nine months
ended June 30, 1998 and 1997
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis 8
PART II - OTHER INFORMATION
ITEMS 1 through 6. 11
Signature 12
<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, September 30,
1998 1997
CURRENT ASSETS:
Cash and cash equivalent $ 283,000 $ 408,000
Receivables 61,000 81,000
Inventories 49,000 51,000
Prepaid expenses and other 96,000 11,000
Receivable from settlement of RTC Claims 0 300,000
Notes receivable 66,000 41,000
Total current assets 555,000 892,000
PROPERTY AND EQUIPMENT, at cost:
Land and building 2,630,000 2,561,000
Leasehold improvements 2,636,000 2,646,000
Fixtures and equipment 3,128,000 3,082,000
8,394,000 8,289,000
Less accumulated depreciation
and amortization (2,935,000) (2,459,000)
5,459,000 5,830,000
OTHER ASSETS:
Notes receivable 388,000 414,000
Deposits & other 27,000 56,000
415,000 470,000
TOTAL ASSETS $6,429,000 $7,192,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 28,000 $ 25,000
Short-term debt 0 0
Current portion of capital
lease obligations 98,000 122,000
Accounts payable 430,000 465,000
Accrued liabilities - Las Vegas 22,000 14,000
Accrued liabilities - RTC 155,000 125,000
Accrued liabilities - other 520,000 675,000
Total current liabilities 1,253,000 1,426,000
LONG-TERM LIABILITIES:
Debt 456,000 478,000
Las Vegas accrued liabilities 138,000 166,000
RTC accrued liabilities 163,000 277,000
Capital lease obligations,
net of current portion 0 68,000
Deferred liabilities 301,000 265,000
Total long-term liabilities 1,058,000 1,254,000
MINORITY INTERESTS IN PARTNERSHIPS 1,504,000 1,619,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
1,000,000 shares of Series A Convertible
Cumulative Preferred Stock issued and
outstanding as of June 30, 1998
and 1,000,000 issued and outstanding
at September 30, 1997
(liquidation preference of $493,750
includes unpaid dividends of $25,000) 10,000 10,000
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Cont.)
June 30, September 30,
1998 1997
Common stock, $.001 par value;
50,000,000 shares authorized,
1,321,252 shares issued and
outstanding as of March 31,
1998 and 1,286,970 shares
issued and outstanding as
of September 30, 1997 6,000 6,000
Capital contributed in excess
of par value 11,836,000 11,822,000
Accumulated deficit (9,238,000) (8,945,000)
Total stockholders' equity 2,614,000 2,893,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,429,000 $7,192,000
<PAGE>
<TABLE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET REVENUES:
Restaurant sales, net $3,358,000 $3,119,000 $9,398,000 $8,337,000
Franchise net revenues 63,000 46,000 143,000 108,000
Total revenues 3,421,000 3,165,000 9,541,000 8,445,000
RESTAURANT OPERATING EXPENSES:
Food & paper costs 1,198,000 1,143,000 3,349,000 3,102,000
Labor, occupancy & other 1,381,000 1,331,000 4,076,000 3,836,000
Accretion of deferred rent 13,000 12,000 33,000 36,000
Depreciation & amortization 162,000 153,000 496,000 445,000
Total restaurant operating costs 2,754,000 2,639,000 7,954,000 7,419,000
INCOME FROM RESTAURANT OPERATIONS 667,000 526,000 1,587,000 1,026,000
OTHER OPERATING EXPENSES:
Selling, general & administrative expenses 528,000 519,000 1,638,000 1,490,000
Loss, (income) from operating RTC stores 13,000 44,000 25,000 12,000
Total other operating expenses 541,000 563,000 1,663,000 1,502,000
INCOME (LOSS) FROM OPERATIONS 126,000 (37,000) (76,000) (476,000)
OTHER INCOME & (EXPENSES)
Minority income (expense), net (87,000) (62,000) (168,000) (79,000)
Interest, net (15,000) (10,000) (45,000) (25,000)
Loss from RTC & Las Vegas lease liabilities 0 0 (55,000) (356,000)
Other, net (3,000) (42,000) 50,000 (24,000)
Total other income & (expenses) (105,000) (114,000) (218,000) (484,000)
NET INCOME (LOSS) $ 21,000 ($ 151,000) ($294,000) ($ 960,000)
PREFERRED STOCK DIVIDENDS IN ARREARS 0 20,000 40,000 45,000
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $ 21,000 ($ 171,000) ($334,000) ($1,005,000)
NET INCOME (LOSS) PER COMMON SHARE $.02 ($0.13) ($.26) ($0.79)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,321,064 1,279,556 1,307,888 1,279,556
</TABLE>
<PAGE>
<TABLE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 21,000 ($151,000) ($294,000) ($960,000)
Depreciation and amortization 175,000 169,000 534,000 504,000
Changes in operating assets & liabilities--
(Increase) decrease in:
Prepaids & receivables (27,000) 33,000 236,000 (98,000)
Inventories 6,000 (2,000) 2,000 (8,000)
Other assets (6,000) 1,000 28,000 23,000
Opening expenses 0 (62,000) 0 (65,000)
(Decrease) increase in:
Accounts payable 0 78,000 (35,000) 92,000
Accrued interest 0 0 0 0
Accrued property taxes (93,000) (60,000) (54,000) (18,000)
Accrued payroll & P/R taxes 7,000 21,000 (3,000) 36,000
Deposits 0 0 0 0
Other accrued liabilities/deferred income (36,000) 69,000 (167,000) 25,000
Net cash provided by (used in)
operating activities 47,000 96,000 247,000 (469,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale - FF&E, land, building
& improvements (21,000) (446,000) (163,000) (162,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt incurred (paid) (136,000) (29,000) (110,000) (678,000)
Minority interest (37,000) 59,000 (115,000) 18,000
Paid in capital activity 0 250,000 15,000 1,039,000
Net cash provided by (used in) (173,000) 280,000 210,000 379,000
financing activities
INCREASE (DECREASE) IN CASH ($147,000) ($70,000) ($126,000) ($252,000)
</TABLE>
1. UNAUDITED FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all of the normal recurring
adjustments necessary to present fairly the financial position of the
Company as of June 30, 1998, the results of its operations and its cash
flow for the three month period ended June 30, 1998 and for the nine
month period ended June 30, 1998. Operating results for the three month
period ended June 30, 1998 and for the nine month period ended June 30,
1998 are not necessarily indicative of the results that may be expected
for the year ending September 30, 1998.
The consolidated balance sheet as of September 30, 1997 is derived
from the audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. As a
result, these financial statements should be read in conjunction with
the Company's Form 10-KSB for the fiscal year ended September 30, 1997.
2. REVERSE STOCK SPLIT:
On February 12, 1998, the shareholders approved a one-for-five
reverse stock split of the Company's Common Stock. All references to
number of shares, except shares authorized, and to per share information
in the consolidated financial statements have been adjusted to reflect
the reverse stock split on a retroactive basis.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE COMPANY
General
On September 30, 1995, the Company completed the sale of Round The
Corner Restaurants, Inc. ("RTC") to Hot Concepts Management Group, L.L.C. In
October 1996, RTC filed for Chapter 11 bankruptcy. The Company entered into a
settlement agreement with RTC whereby RTC would pay the Company $300,000 in
two installments for the settlement of all of the Company's claims against
RTC. Both installments have been received as of June 30, 1998.
As of June 30, 1998, the Company has assessed the impact of the Year
2000 Issue on its computer systems and is in the process of remediating the
affected hardware and software, which coincides with planned systems upgrades.
The Company does not anticipate the Year 2000 Issue to materially affect its
business operations. Capital expenditures for the Year 2000 remediation and
planned system upgrades are estimated to be $150,000 in 1999.
Drive Thru had twenty-eight units open at June 30, 1998, of which twelve
were franchised units, nine joint-venture units and seven company-owned units
compared to twenty-seven units open at June 30, 1997, of which eleven were
franchised units, nine joint-venture units and seven company-owned units.
In March 1998, one company-owned unit was closed and moved to temporary
storage due to the condemnation of the property on which it was located. The
Company is currently negotiating with the condemning authority to recover
condemnation proceeds which is anticipated to offset the costs incurred to
move the building and equipment as well as the cost of all abandoned site
improvements. The building and equipment will be moved to a new location as
soon as a suitable site is found.
Management anticipates that Drive Thru and its existing franchisees will
develop a total of two additional Good Times units in the Denver ADI in 1998.
The following presents certain historical financial information of the
operations of the Company. This financial information includes the results of
the Company and Drive Thru for the three months and nine months ended June 30,
1997 and the results of the Company and Drive Thru for the three months and
nine months ended June 30, 1998.
Results of Operations
Net Revenues. Net restaurant sales for the three months ended June 30,
1998 increased $239,000 (7.6%) to $3,358,000 from $3,119,000 for the same
prior year period. Increased net restaurant sales of $309,000 were
attributable to three Drive Thru units that were not open for the same prior
year period. Decreased net restaurant sales of $155,000 were attributable to
one company-owned unit that was closed in March 1998. Same store net
restaurant sales for company-owned and joint-venture units increased $85,000
or 3.0% for the three months ended June 30, 1998 from the same prior year
period. Franchise revenue increased $17,000 for the three months ended June
30, 1998 from the same prior year period due to an increase in franchise fee
income.
Net restaurant sales for the nine months ended June 30, 1998 increased
$1,061,000 (12.7%) to $9,398,000 from $8,337,000 for the same prior year
period. Increased net restaurant sales of $1,104,000 were attributable to
three Drive Thru units that were not open for the same prior year period.
Decreased net restaurant sales of $343,000 were attributable to one joint-
venture unit that was sold to a franchisee in November 1996 and one company-
owned unit that was closed in March 1998. Same store net restaurant sales for
company-owned and joint-venture units increased $300,000 or 3.9% for the nine
months ended June 30, 1998 from the same prior year period. Franchise revenue
increased $35,000 during the nine months ended June 30, 1998 from the same
prior year period due to higher franchise royalty fees and lower franchise
expenses.
Food and Paper Costs. Food and paper costs decreased to 35.7% of net
restaurant sales for the three months ended June 30, 1998, compared to 36.6%
for the same prior year period. 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 fiscal year ended September 30, 1997, with less than
proportionate increases in food and paper costs.
Food and paper costs decreased to 35.6% of net restaurant sales for the
nine months ended June 30, 1998 compared to 37.2% for the same prior year
period.
Income From Restaurant Operations. For the three months ended June 30,
1998, income from restaurant operations increased to $667,000 from $526,000
for the same prior year period. Drive Thru's income from restaurant operations
as a percentage of net restaurant sales increased to 19.9% for the three
months ended June 30, 1998 from 16.9% for the same prior year period.
Cash flow from restaurant operations (income from restaurant operations
plus depreciation and amortization) increased to 24.7% of net restaurant sales
for the three months ended June 30, 1998 from 21.8% for the same prior year
period.
For the nine months ended June 30, 1998, income from restaurant
operations increased to $1,587,000 from $1,026,000 for the same prior year
period. Drive Thru's income from restaurant operations as a percentage of net
restaurant sales increased to 16.9% for the nine months ended June 30, 1998
from 12.3% for the same prior year period.
Cash flow from restaurant operations (income from restaurant operations
plus depreciation and amortization) increased to 22.2% of net restaurant sales
for the nine months ended June 30, 1998 from 17.6% for the same prior year
period.
The improvement in both income and cash flow from restaurants as a
percentage of net restaurant sales is a direct result of 1) management's focus
on improving restaurant labor efficiencies and restaurant expenses; 2) a
reduction in food and paper costs as a percentage of net restaurant sales due
to menu price increases; and 3) an increase in same store net restaurant
sales, which causes restaurant expenses to decrease as a percentage of net
restaurant sales.
Income (Losses) From Operations. The Company had income from operations
of $126,000 in the three months ended June 30, 1998 compared to a loss from
operations of ($37,000) for the three months ended June 30, 1997. The
improvement in income from operations of $163,000 is primarily attributable to
an increase in income from restaurant operations of $141,000, and a decrease
in the loss from operating RTC stores of $31,000 compared to the same prior
year period.
For the nine months ended June 30, 1998, losses from operations
decreased to ($76,000) from ($476,000) in the same prior year period. The
improvement in income from operations of $400,000 for the nine months ended
June 30, 1998 is primarily attributable to an increase in income from
restaurant operations of $561,000 offset by an increase in selling, general
and administrative expenses of $148,000 compared to the same prior year
period, primarily attributable to costs incurred for a television advertising
campaign launched in September 1997.
Net Income (Loss). The net income for the Company was $21,000 for the
three months ended June 30, 1998 compared to a net loss for the Company of
($151,000) for the comparable prior year period. Minority interest expense
increased $25,000 in the three months ended June 30, 1998 from the same prior
year period. This increase was attributable to the improved income from
restaurant operations from the Colorado joint-venture units compared to the
same prior year period. Net interest expense increased $5,000 for the three
months ended June 30, 1998 from the same prior year period. Other net expense
decreased ($39,000) for the three months ended June 30, 1998 from the same
prior year period. During the three months ended June 30, 1997 other net
expense included $17,000 in lease termination charges and $25,000 for the
settlement of a legal dispute associated with a lease termination on an
undeveloped site.
For the nine months ended June 30, 1998, the net loss for the Company
was ($294,000) compared to a net loss for the Company of ($960,000) from the
same prior year period. Minority interest expense increased $89,000 in the
nine months ended June 30, 1998 from the same prior year period. Other income
for the nine months ended June 30, 1998 increased $74,000 from the same prior
year period. Included in other income for the nine months ended June 30, 1998
is a gain of $53,000 related to the sale of a long-term land investment held
by the Company.
Liquidity and Capital Resources
As of June 30, 1998, the Company and Drive Thru had $283,000 cash and
cash equivalents on hand. 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. New sources of financing will be required to
augment these proceeds for the development of additional company-owned
restaurants. Management is in negotiation for mortgage and equipment debt
financing for up to seven additional restaurants. The financing will require
a partial guaranty by The Bailey Company. As a result, the Company has
extended The Bailey Company's conversion rights under the Convertible
Preferred Stock Agreement as a part of the negotiations of the guaranty
provisions.
The Company had a working capital deficit of ($698,000) including
$98,000 of current maturities of capital lease obligations, $28,000 in current
maturities of long-term debt and $177,000 of accrued lease expenses associated
with the RTC and Las Vegas lease liabilities. 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.
Cash flow from operating activities for the three months ended June 30,
1998 includes the payment of $123,000 in property taxes due annually.
Cash flow from financing activities for the three months ended June 30,
1998 includes the payment of $100,000 for a short-term working capital loan
agreement entered into by the Company in February 1998.
For the nine months ended June 30, 1998, cash decreased ($126,000).
Cash provided by operations was $247,000, cash used in investing activities
was $163,000, and cash used in financing activities was $210,000.
Cash flow from operating activities for the nine months ended June 30,
1998 includes $300,000 received from RTC for the settlement of all of the
Company's claims against RTC.
Neither the Company nor Drive Thru have any bank lines of credit.
Impact of Inflation
Drive Thru has not experienced a significant impact from inflation. It
is anticipated any operating expense increases will be recovered by increasing
menu prices to the extent that is prudent considering competition.
Seasonality
Revenues of Drive Thru are subject to seasonal fluctuation based
primarily on weather conditions adversely affecting restaurant sales in
January, February and March.
<PAGE>
GOOD TIMES RESTAURANTS INC. & SUBSIDIARIES
Part II. - Other Information
Item 1. - Legal Proceedings
O'Brien v. Harkins and Good Times Drive Thru Inc. On September 11,
1997, Amy Colleen O'Brien ("O'Brien") filed a complaint in the Colorado
District Court for Jefferson County alleging that she, as a former employee of
Drive Thru in 1995, was physically assaulted by co-defendant Richard Everett
Harkins, a former Drive Thru employee, and that Drive Thru was responsible for
any resulting injuries because of its alleged negligent hiring and supervision
of Harkins. On June 11, 1998, the Colorado District Court for Jefferson
County granted Good Times Drive Thru Inc's motion for summary judgement and
dismissed the case against the Company. The Company requested that its
applicable worker's compensation insurance carrier concede coverage and
provide a defense to this action. The insurance carrier acknowledged its
agreement with Drive Thru's position and the basis for which the summary
motion was granted that the exclusive remedy for O'Brien's claims are those
remedies available pursuant to the Colorado Worker's Compensation Act, but
denied that the Company is entitled to either coverage or a defense to this
action. Accordingly, the Company has filed a declaratory judgment action
against the insurance carrier requesting a determination that the Company is
entitled to coverage in a defense to this action and reimbursement of
attorneys fees.
Item 2. - Changes in Securities
On February 12, 1998, the date of the Company's annual shareholder's
meeting, a one-for-five reverse split was approved. The reverse split was
necessary to meet the revised listing requirements for continued listing on
the NASDAQ stock exchange.
Item 3. - Defaults Upon Senior Securities
None.
Item 4. - Submission of Matters to a Vote of Security Holders
None.
Item 5. - Other Information
None.
Item 6. - Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of The Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOOD TIMES RESTAURANTS INC.
DATE: August 6, 1998 BY: /s/ Boyd E. Hoback, President
and Chief Executive Officer
Boyd E. Hoback, President
and Chief Executive Officer
BY: /s/ Susan Knutson, Controller
Susan Knutson, Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1998
<CASH> 283000
<SECURITIES> 0
<RECEIVABLES> 61000
<ALLOWANCES> 0
<INVENTORY> 49000
<CURRENT-ASSETS> 555000
<PP&E> 8394000
<DEPRECIATION> (2935000)
<TOTAL-ASSETS> 6429000
<CURRENT-LIABILITIES> 1253000
<BONDS> 0
0
10000
<COMMON> 6000
<OTHER-SE> 2614000
<TOTAL-LIABILITY-AND-EQUITY> 6429000
<SALES> 3358000
<TOTAL-REVENUES> 3421000
<CGS> 1198000
<TOTAL-COSTS> 2754000
<OTHER-EXPENSES> 541000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15000)
<INCOME-PRETAX> 21000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
