10-K
1
gt121620010k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 29, 2020
OR
̈ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-18590
(Exact name of registrant as specified in
its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number: (303)
384-1400
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock $.001 par value GTIM NASDAQ Capital Market
Securities registered pursuant to Section
12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes ̈ No
þ
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ̈ No
þ
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.
Yes þ No
̈
Indicate by check mark whether the registrant has submitted
electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files)
Yes þ No
̈
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ̈ Non-accelerated filer þ
Accelerated filer ̈ Smaller reporting company þ
Emerging growth company ̈
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ̈
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b) by the registered
public accounting firm that prepared or issued its audit report ̈
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ̈ No
þ
As of March 31, 2020 (the last business day of our most recently
completed second fiscal quarter), the aggregate market value of the 9,805,344 shares of common stock held by non-affiliates of
the registrant was $5,687,100.
As of December 11, 2020, the registrant had 12,629,400 shares
of common stock outstanding.
Documents Incorporated
by Reference
Certain information required by Part III
of this Annual Report on Form 10-K is incorporated by reference herein from the registrant’s definitive proxy statement
relating to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after
the end of the registrant's fiscal year ended September 29, 2020.
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business 3
Item 1A Risk Factors 16
Item 1B Unresolved Staff Comments 22
Item 2 Properties 22
Item 3 Legal Proceedings 23
Item 4 Mine Safety Disclosures 23
PART II
Item 6 Selected Financial Data 23
Item 7A Quantitative and Qualitative Disclosures About Market Risk 33
Item 8 Financial Statements and Supplementary Data 33
Item 9A Controls and Procedures 33
Item 9B Other Information 34
PART III
Item 10 Directors, Executive Officers and Corporate Governance 34
Item 11 Executive Compensation 34
Item 14 Principal Accountant Fees and Services 34
PART IV
Item 15 Exhibits, Financial Statement Schedules 35
Signatures 39
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PART I
ITEM 1. BUSINESS
Our Company
Good Times Restaurants Inc., a Nevada corporation
formed on October 6, 1996, operates and franchises Bad Daddy’s Burger Bar restaurants (“BDBB” or “Bad Daddy’s”)
and Good Times Burgers & Frozen Custard (“GTBFC” or “Good Times”) restaurants. Bad Daddy’s and
Good Times are two distinctly different, yet complementary, restaurant concepts. Each is positioned as a premium brand within its
respective segment of the industry. Bad Daddy’s operates in the full-service dining segment as a premium burger bar concept
and Good Times operates in the quick-service restaurant segment as a high-quality drive-thru focused concept.
Through our subsidiaries, as of December
11, 2020, we own, operate, franchise, or license a total of thirty-nine Bad Daddy’s restaurants in seven states. We own and
operate twelve Bad Daddy’s restaurants in Colorado, one Bad Daddy’s restaurant in Oklahoma, fifteen Bad Daddy’s
restaurants in North Carolina, and ten Bad Daddy’s restaurants in three other states within the Southeast region of the United
States. Of these restaurants, four restaurants are operated through joint-venture arrangements where we are the operating partner
and own between 23% and 75% interest in the joint-venture entities. We license the Bad Daddy’s brand for the Bad Daddy’s
restaurant located in the Charlotte Douglas International Airport which is owned and operated by a third-party licensee. One additional
Bad Daddy’s restaurant in Greenville, S.C. is operated by a third-party franchisee.
We currently own and operate or franchise
thirty-two total Good Times restaurants. Of these restaurants, thirty are in Colorado. Two of the restaurants are in Wyoming and
are “dual brand” concept restaurants operated by a franchisee of both Good Times and Taco John’s.
The terms “we,” “us,”
“our,” the “Company,” “Good Times” and similar terms refer to Good Times Restaurants Inc.,
a Nevada corporation, and its wholly-owned consolidated subsidiaries, including Bad Daddy’s Franchise Development, LLC; Bad
Daddy’s International, LLC; Good Times Drive-Thru Inc. (“Drive Thru”); and BD of Colorado, LLC. Unless otherwise
indicated or the context otherwise requires, financial and operating data in this 10-K report reflect the consolidated business
and operations of Good Times Restaurants Inc. and its subsidiaries.
The Company’s fiscal year is a 52/53-week
year ending on the last Tuesday of September. In a 52-week fiscal year, each of the Company’s quarterly periods comprise
13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks.
Fiscal year 2020 had a quarter with 14 weeks. Our discussion for fiscal years 2020 and 2019, which ended on September 29, 2020
(“fiscal 2020”) and September 24, 2019 (“fiscal 2019”), respectively, cover periods of 53 full calendar
weeks in fiscal 2020 and 52 full calendar weeks in fiscal 2019.
Fiscal 2020 Financial & Brand Highlights
· The Good Times brand had a 7.9% increase in same store sales for fiscal 2020.
· One company-owned Good Times restaurant closed during fiscal 2020.
Recent Developments
COVID-19 Pandemic: The global crisis
resulting from the spread of COVID-19 had a substantial impact on our restaurant operations during the third and fourth fiscal
quarters of 2020. During portions of the month of March 2020 through late May 2020, all of the Company’s Bad Daddy’s
Burger Bar restaurants were open only for delivery and carry-out service, with dining rooms closed by government orders. Beginning
in late May 2020, we began to re-open dining rooms at Bad Daddy’s as local regulations allowed. By early June, we had re-opened
all the dining rooms at Bad Daddy’s, which remained open through the end of the fiscal year. Although our dining rooms were
open, all were operating at some reduction of capacity, whether driven by explicit capacity reductions under government orders,
or due to social distancing protocols that are either mandated by the same government orders, or which we abide by as under our
own internal protocols designed to maintain a safe foodservice environment, both for our employees and for our customers.
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Our operating results substantially depend
upon our ability to drive traffic to our restaurants, and for our Bad Daddy’s Burger Bar restaurants, to serve guests in
our dining rooms. We cannot currently estimate the duration of the impact of the COVID-19 pandemic on our business; neither are
we able to predict how the pandemic will evolve nor how various government entities will respond to its evolution. In November
2020 all of our dining rooms in Colorado closed again due to government requirements, which we expect to result in lower average
weekly sales for those restaurants. Should additional dining room closures occur, our business would be adversely affected. All
of our Bad Daddy’s restaurants have outdoor seating options which are currently open for seating, including under current
Colorado COVID-19 guidelines. Should outdoor seating be restricted similar to the way dining rooms have, our business would also
be adversely affected. Even without government orders, customers may choose to reduce or eliminate in-restaurant dining because
of increasing numbers of COVID-19 cases, hospitalizations, or deaths.
Additionally, in connection with spread
of COVID-19, there have been disruptions in various food supply chains in the United States. Our operating results substantially
depend upon our ability to obtain sufficient quantities of products such as beef, bacon, and other products used in the production
of items served and sold to our guests. Ongoing impacts of the COVID-19 pandemic could result in product shortages and in turn
could require us to serve a limited menu, restrict number of items purchased per guest, or close some or all of our restaurants
for an indeterminate period of time. Ongoing material adverse impacts from the COVID-19 pandemic could result in reduced revenue
and cash flow and could affect our assessments of impairment of intangible assets, long-lived assets, or goodwill.
We took extraordinary actions to increase
our liquidity in response to COVID-19, including temporarily reducing employee pay, reductions in force, and obtaining Paycheck
Protection Program (the “PPP”) loans. The PPP is sponsored by the Small Business Administration (the “SBA”).
The PPP is part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). We have since significantly
increased employment levels and restored pay to employees as of the date of this report. Although we currently have a meaningful
cash balance and generated significant cash flow from operations during the fourth fiscal quarter, should business decline significantly
as a result of the pandemic we would not likely be able to take some of the same actions without negatively impacting the long-term
viability of the business. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets,
and more specifically to those borrowers operating in the full-service dining segment, and there can be no guarantee that additional
liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur.
The impact on our operating results as
well as the operational and financial measures we have implemented in response to the COVID-19 pandemic have been included throughout
this report.
Debt: We previously entered into
a credit agreement with Cadence Bank (the “Cadence Credit Facility”) to provide the necessary capital to fund future
Bad Daddy’s and Good Times locations as well as fund the continued remodel of existing Good Times locations and recurring
capital expenditures. In October 2018, this agreement was amended to increase the borrowing capacity of the revolving line of credit
to a total of $17,000,000. In February 2019, we entered into an amendment to the Cadence Credit Facility to provide consent for
BDI to purchase all of the non-controlling equity interest of three joint-venture Bad Daddy’s entities in the Raleigh market.
In December 2019, we entered into an additional amendment in connection with the separation of the Company’s former CEO,
to amend the definition of “Consolidated EBITDA” for the purposes of financial covenants, to require certain installment
payments, and to permit the company to make certain “Restricted Payments” (as defined in the Cadence Credit Facility).
On April 14, 2020, the Company entered
into a Consent and Forbearance Agreement effective March 31, 2020 (the “Forbearance Agreement”) with respect to the
Cadence Credit Facility. The Company informed Cadence that certain events of default may occur as a result of Company’s failure
to comply with certain financial covenants for the fiscal quarter ended on or about March 31, 2020 (collectively, the “Potential
Events of Default”). Pursuant to the terms of the Forbearance Agreement, from March 31, 2020 through 11:59 p.m. (Eastern
time) on June 30, 2020 (the “Forbearance Period”), Cadence agreed to forbear from exercising any available rights and
remedies under the Cadence Credit Facility to the extent such rights and remedies arise exclusively as a result of the Potential
Events of Default. Further, Cadence agreed to consent to the Company’s request to defer the principal payment (the “Payment
Deferral”) on the loans due on June 30, 2020 until the maturity date. The forbearance period (the “Forbearance Period”)
expired at 11:59 p.m. (Eastern time) on June 30, 2020. The Company has been in compliance with all financial covenants since the
expiration of the Forbearance Period.
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On May 7, 2020 we entered into entered
into unsecured loans (the “PPP Loans”)in the aggregate principal amount of $11,645,000 with Cadence Bank, N.A. (the
“Lender”) pursuant to the Paycheck Protection Program (the “PPP”), which is sponsored by the Small Business
Administration (the “SBA”). The PPP is part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES
Act”). The PPP Loans are evidenced by individual promissory notes executed on May 7, 2020 (together, the “Notes”)
in favor of the Lender which Notes bear interest at the rate of 1.00% per annum. All or a portion of the Loans may be forgiven
by the SBA upon application by the borrowers accompanied by documentation of expenditures in accordance with SBA requirements under
the PPP, which includes employees being kept on the payroll for eight weeks after the date of the PPP Loans and the proceeds of
such PPP Loans being used for payroll, rent, mortgage interest or utilities. We believe we are in compliance with all such requirements
but, in the absence of definitive guidance, cannot give assurance that the PPP Loans will indeed be forgiven. See “Item 1A
Risk Factors”.
Concepts
Bad Daddy’s Burger Bar
Bad Daddy’s Burger Bar is a full-service,
casual dining small box “better burger” concept. Bad Daddy’s currently operates all of its company-owned restaurants
under a table service / full-bar service model.
There are three primary elements of the
concept that we try and differentiate from our competition:
While clearly available for on-premises
customers, all three of these elements are available for our off-premises guests as well, as we (1) offer the same customization
on our off-premises ordering platforms as we offer in-restaurant, (2) where allowable by state or local regulation, we also provide
our alcoholic beverages in an off-premises format for those customers who are ordering their meal for carryout or delivery, and
(3) we offer the same level of hospitality to our carry-out guests and tightly manage our delivery service providers to a similar
expectation of over-the-top service.
This brand positioning results in transactions
that generate an average per person check of approximately $19. The lunch daypart (open until 2pm) represents approximately 36%
and the happy hour and dinner dayparts (2pm until close) represent approximately 64% of restaurant sales. Off-premise sales, including
take-out, delivery and curbside pickup, accounted for approximately 30% of all system-wide sales in Fiscal 2020, an increase of
19% over Fiscal 2019. This change in off- to on-premise sales was a result of COVID-19 closures and capacity reductions. Off-premise
sales average $27 per transaction while on-premise sales average $30 per transaction.
A typical Bad Daddy’s restaurant
is approximately 3,500-4,000 square feet with an enclosed patio, smaller than most other chain casual dining restaurants. Fiscal
2020 average restaurant sales were projected to be approximately $2.6 million based upon historical performance and planned new
restaurant openings, which would have resulted in average sales per square foot of approximately $684. We believe this is a key
metric indicating the strength and expansion potential of the concept. COVID-19 has affected our average unit volumes, however,
resulting in actual Fiscal 2020 average annual restaurants sales of $2.0 million, generating average sales per square foot of approximately
$556.
While sharing common design elements, each
restaurant has unique features intended to create the impression that each Bad Daddy’s is local to its trade area and serves
as a further point of differentiation from the larger casual dining chains. We believe Bad Daddy’s’ innovative menu
and personalized service combined with a unique, fun restaurant design enhance our customers’ experience and differentiate
Bad Daddy’s from its competitors.
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In November 2020 the Company launched an
all-new virtual brand, Bad Mama’s Chicken. This concept currently utilizes twenty-four existing Bad Daddy’s Burger
Bar kitchens and staff and is available only on major third-party delivery platforms. The limited menu includes fresh jumbo chicken
wings and hand-battered fresh chicken tenders with multiple unique dipping sauces and sides including crispy tater tots, housemade
potato chips and creamy, scratch-made mac and cheese. The Company is assessing expanding the virtual concept beyond the select
locations in Alabama, Colorado, Georgia and Oklahoma, North Carolina, South Carolina and Tennessee.
Good Times Burgers & Frozen Custard
Good Times is an upscale, quick-service
restaurant concept offering fresh, 100% all-natural, hand-crafted products. We own and operate 24 Good Times restaurants, and franchise
an additional eight, located primarily in the Denver market and along the front range of Colorado. We believe Good Times was the
first quick-service chain in our region, and one of the first in the country to offer a menu of fresh all-natural Angus beef and
all-natural chicken from animals that are humanely raised and vegetarian fed without the use of added hormones, steroids, or antibiotics.
We compete primarily on the quality of
our products and consistently prompt service. We support our quality position by using only all-natural beef and chicken. Sandwiches
and sides are made to order to assure they are fresh and hot. Our All Natural Frozen Custard is made fresh throughout the day.
These quality commitments help Good Times challenge quick-serve restaurant norms and match quality found at fast casual restaurants.
Our focus on speed of service keeps our customers happy as most of our sales come from the drive thru. With menu innovation, we
strive to create flavor profiles unique to Good Times. We have rotating limited time menu items and custard flavors. Our customers
appreciate that we support local causes and do not take ourselves too seriously. Good Times is able to communicate these advantages
and promotions through the use of radio and digital advertising.
Our average per person check is approximately
$9.61, which we believe is lower than the average check at fast casual hamburger concepts such as Habit Burger, Five Guys, and
Smashburger, but higher than the typical quick-service restaurant average check. We do not offer a low-priced value menu like most
national quick-service chains, choosing to define our value proposition based on quality ingredients with a specific focus on all-natural
beef and chicken and products spanning a range of price choices within each of our menu categories. We have shifted our focus to
a blend of quality and speed while slightly reducing the number of items on the menu.
Good Times is primarily a drive-through
concept, as all our restaurants have at least one drive-through lane and generally have a walk-up window where customers may additionally
place orders. Many of our restaurants have no indoor seating and consist of one or two drive-through lanes and outdoor patio seating.
Speed of service in this segment is critical for success and we average less than three-minute transaction times, as measured from
the time the customer places their order until they leave the drive-through lane. Prior to the COVID-19 pandemic, even in our restaurants
that feature dine-in seating, a majority of our sales were conducted through the drive-thru lane. All of our company-owned Good
Times restaurants dining rooms are closed currently and have been since late March 2020. Customers are able to enter restaurants
with dining rooms to place orders and are able to place orders at the walk-up windows in those locations without dining rooms.
Our patios are currently open for outdoor dining as allowed under current Colorado COVID-19 restaurant guidelines.
The success of our strategy is evident
in our long-term same-store sales growth (sales growth over the prior year period at restaurants open more than 18 months, also
referred to as comparable sales). Fiscal 2020’s same store sales increased 7.9% preceded by a minimal same store sales decline
of (0.4%) in fiscal 2019 and comparable sales growth of 4.2% in fiscal 2018 and 2.1% in fiscal 2017.Compound annual same store
sales growth over the last five fiscal years was 3.9%.
Our Business Strengths
Our Brands Are Complementary.
While operating in different segments of
the restaurant industry, our two brands complement each other in both their similarities and differences:
Each has a value proposition primarily
driven by quality and higher-touch service that deliver an exceptional experience to each guest. The menu contains chef-inspired
items with many made from scratch in our kitchens. Bad Daddy’s resonates with consumers by consistently executing high-quality
menu items with bold flavors delivered in a high-energy environment with a slightly irreverent brand personality. The appeal of
Bad Daddy’s supersedes a purely on-premise customer experience however, as the focus we place on bold, unique flavors; superior
ingredients; and scratch cooking in each kitchen translates into significant off-premise adoption, both through traditional customer
carry-out and delivery by third party delivery service providers.
We believe Good Times is the only quick-service
chain in our region with an all-natural platform. We do not offer a low-priced menu as many national quick-service chains do, choosing
to compete on a market position emphasizing quality with a specific focus on all-natural beef and chicken, and with a variety of
price points across the menu with quick-service restaurant speed of service. The quick-service, and in particular, drive-thru format
of our Good Times concept offers a balancing effect to business cycles that are common in the full-service segment of the restaurant
industry.
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Our Brands Have a Common Culture and
Operating Philosophy.
While each of our brands is led by separate
operating teams, each shares a commitment to four core values and four dimensions of our business:
· Dimensions of the Business:
Our Brands Have Growth Potential.
We believe both of our brands are well
positioned to take advantage of consumers’ changing demands for restaurants, whether regarding the quality of the ingredients,
the ability to customize their order exactly to their liking, or the ability to eat their food in a restaurant dining room,
on a patio, in their car, or to either pick it up or have it delivered so they can eat it at their home or office. We believe Good
Times and Bad Daddy’s are both well positioned to capitalize on those macro-trends.
Both of our brands currently operate with
relatively small market penetration and overall development footprints, providing significant expansion potential. It is our goal
to primarily grow our Bad Daddy’s brand and to do so relatively contiguously from our existing restaurants in order to maximize
brand awareness and operating and distribution efficiencies.
Good Times and Bad Daddy’s operate
with a common point-of-purchase system and we have implemented a common back office system for both brands. We are also continuing
to invest in sophisticated digital training tools, making each brand’s restaurant level processes, systems, recipes and management
tools available in one commonly accessible database.
We Have Assembled a Dedicated Senior
Leadership Team with Significant Experience.
Each of the members of our senior leadership
team have more than fifteen years of relevant experience in their field of expertise, and nearly all have more than fifteen years
of industry experience, with many members having worked together for more than 20 years developing the Good Times concept. Upon
adding the Bad Daddy’s concept to the business, we made strategic hires to complement our management team with individuals
with depth of experience in operating and growing full-service concepts.
Each brand is operated with distinct operations
teams led by its own operations leader, while utilizing shared support capabilities in administration, finance, accounting, human
resources, development, marketing and information technology, each capability led by its own qualified leader with many years of
functional and leadership experience. We believe we have people with the right expertise as well as capable processes and systems
in place to support both concepts and targeted future growth of the Bad Daddy’s concept.
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We Have Maintained Operating Momentum.
Same-store sales at Good Times have increased
nine of the past ten years. Same-store sales increased for fiscal 2020 primarily due to an extra operating week in the first fiscal
quarter of 2020 and price increases of approximately 4.0%. Our compound annual same-store sales growth rate was approximately 5.5%
from fiscal 2014 to fiscal 2020. We believe this performance is largely the result of the evolution in our brand positioning, the
re-imaging of several of our older restaurants, effective management of media mix, and consistent execution of the customer experience.
We plan to continue to periodically re-image and remodel our restaurants, maintain a relevant menu with a laser focus on speed
and accuracy in execution, in keeping with our brand strategy, and communicate our brand story to maintain our same-store sales
growth.
The Bad Daddy’s concept was started
in 2007 in Charlotte, North Carolina by a qualified chef and was initially expanded in partnership with a serial restaurant entrepreneur
who remains a non-controlling partner in a five of our Bad Daddy’s restaurants. Sales of the Bad Daddy’s restaurants
which were open for at least 18 months averaged $2.0 million for fiscal 2020, which was severely impacted by dining room closures
and reduced dining room capacities resulting from the COVID-19 pandemic. We opened two restaurants in fiscal 2020 and four in fiscal
2019. The magnitude of our sales returns in the third and fourth fiscal quarters upon reopening of dining rooms gives us confidence
in the strength of the Bad Daddy’s concept and the ability for us to deliver upon our pre-pandemic model in a post-pandemic
world, such that we expect significant expansion potential, both in our existing markets and in new markets.
Business Strategies
We are focused on continuing to grow same
store sales and improve the profitability of the Good Times concept while continuing targeted unit growth of the Bad Daddy’s
Burger Bar concept in domestic markets. We believe that there are significant opportunities to develop new units, grow customer
traffic and increase awareness of our brands. The following sets forth the key elements of our growth strategy:
Expansion
strategy and site selection
Bad Daddy’s Burger Bar
Our development of the Bad Daddy’s
Burger Bar concept in company-owned restaurants has focused on urban and suburban upper income demographic areas with median household
incomes over $60,000, with a high concentration of daytime employment, upscale retail and movie theaters. We use specialized
software to create a sales forecast for each site and have continued to update the data in that site forecasting software even
as we have reduced growth during 2020. We expect to utilize this software as one component of decision making in the selection
of site for future Bad Daddy’s restaurant locations.
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Bad Daddy’s Burger Bar locations
are primarily end-cap locations in new and existing shopping center developments using approximately 3,500 to 4,000 square feet. While
our Good Times restaurants are free standing and require extensive site development and entitlement processes, Bad Daddy’s
Burger Bar restaurants can be developed much more quickly due to the requirement for only a building permit, signage approvals
and liquor license without the need for extensive on- and off-site development or land and zoning submittals and modifications.
We estimate that it will take approximately 115 to 135 days to develop a Bad Daddy’s Burger Bar from the time a building
permit is issued. We expect that the majority of the Company’s unit growth will be through the development of additional
Bad Daddy’s Burger Bar locations.
Good Times Burgers & Frozen Custard
We do not have explicit plans to develop
additional Good Times restaurants, as we continue to refine the economic model of our primarily drive-thru business. However, we
expect that any opportunistic development in Good Times locations would be through a lens of growth in Colorado and potentially
surrounding states, which would preserve operating and marketing efficiencies created by the geographic concentration of our existing
base of restaurants. Any development of new Good Times restaurants would involve a new prototype restaurant design focused primarily
on drive-thru with an outside patio but without any enclosed dining room.
We currently lease either the land or the
land and building for all of our Good Times restaurants. If we were to develop additional sites, a lease/buy decision
would be based upon the economics of the property and our long-term point of view on the underlying real estate and do not have
an explicit preference for leasing in the case of future Good Times restaurants. Our primary site objective is to secure a suitable
site, with the decision to buy or lease as a secondary objective. Our site selection process includes evaluating several
criteria, including a mix of substantial daily traffic, density of at least 30,000 people within a three-mile radius, strong daytime
population and employment base, retail and entertainment traffic generators, good visibility and easy access.
Restaurant locations
As of December 11, 2020, we operate, franchise
or license a total of thirty-nine Bad Daddy’s Burger Bar locations. The location in the Charlotte Douglas International Airport
is operated pursuant to a License Agreement.
Additionally, we operate or franchise a
total of thirty-two Good Times restaurants.
Company-Owned/Co-Developed/Joint-Venture
Bad Daddy’s Burger Bar Good Times Burgers & Frozen Custard Total
One company-owned Good Times restaurant closed, and the property
was subleased during fiscal 2020. Additionally, one company-owned Good Times restaurant closed subsequent to September 29, 2020
that the Company intends to sublease to a non-affiliated entity.
We opened two company-owned Bad Daddy’s restaurants during
the first fiscal quarter of 2020.
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Franchise/License
Bad Daddy’s Burger Bar Good Times Burgers & Frozen Custard Total
Menu
Bad Daddy’s Burger Bar
The Bad Daddy's Burger Bar menu offers
our guests a culinary-driven menu consisting of our own unique blend of high quality and handcrafted Angus beef burgers with creative,
scratch-made toppings including buttermilk-fried bacon, housemade American cheese, creamy ale queso made in-house with our Bad
Daddy’s Amber Ale, and our specialty signature Bad Daddy’s sauce. The customizable menu options also include
a variety of proteins including black bean, salmon, turkey, buffalo and chicken. Additionally, we offer giant chopped salads,
a full gluten-friendly menu, appetizers including hand-cut fries and housemade potato chips, hand-spun ice cream milk shakes and
our scratch-made "southern-style" banana pudding. We feature a variety of craft beers from local breweries and
a full bar serving spirits, innovative cocktails, and wines including our signature Red and White pours.
Our
signature recipes include the Bad Ass Burger; Sam I Am Burger and Emilio’s Chicken Sandwich. Signature Chopped Salads
include the Texican Chicken Salad and the Stella’s Greek Salad. The Bad Daddy’s Create Your Own menu allows full customization
of burgers and salads offering over sixty topping options. We’ve partnered with Full Sail Brewing, Breckenridge Brewing,
and Stone Brewery to make our Bad Daddy's draft brews including Bad Daddy’s Amber Ale, IPA, and Blonde. Our creative cocktail
menu uses fresh-squeezed housemade sours and fresh garnishes in our signature Bad Ass Margaritas and features creative and timeless
options including the Daddy’s Dragonberry and a Peanutbutter Old Fashioned.
Bad
Daddy’s Burger Bar strives to provide proprietary flavors and recipes available nowhere else with fresh, handcrafted quality
throughout the menu paired with genuine and warm hospitality. We also commit to making occasional changes to keep our menu fresh
for our guests while still maintaining the spirited flavor profiles that distinguish us from others. In addition, we have rotating
chef specials with flavor profiles unique to Bad Daddy's. At times we also feature a burger with local ingredients with a giveback
to a local charity.
Good Times Burgers & Frozen Custard
The menu of each Good Times restaurant
is focused primarily on hamburgers, cheeseburgers, chicken sandwiches and chicken tenders that are fresh, never frozen, and using
only all-natural beef and chicken. This menu is supplemented by side selections including two types of french fries, jalapeno potato
poppers, and onion rings. Beverages include typical soft drinks and fresh lemonades, with a selection of frozen custard products.
We have a limited breakfast menu consisting of breakfast burritos, orange juice and coffee and a kid’s meal menu featuring
a choice of main item, side, drink, and a wooden nickel that can be redeemed for a free kid’s cup or cone of custard.
Our hamburger patties are made with Meyer
all-natural, all-Angus beef. Our chicken products are sourced from Springer Mountain Farms, which provides all-natural, antibiotic
free, humanely-raised chicken. All-natural Angus beef and chicken are raised without the use of any hormones, antibiotics or animal
byproducts that are normally used in the open market. We believe that all-natural beef and chicken deliver a better tasting product
and, because of the rigorous protocols and testing that are a part of the Meyer all-natural, all-Angus Beef and Springer Mountain
Farms Chicken processes, may also minimize the risk of any food-borne bacteria-related illnesses. We also believe that the use
of premium, all-natural beef and chicken products help us to differentiate our concept in a crowded quick-service segment of the
restaurant industry.
Our fresh frozen custard is a premium ice
cream with a proprietary vanilla blend that is prepared from highly specialized equipment that minimizes the amount of air that
is added to the mix and that creates smaller ice crystals than other frozen dairy desserts The resulting product is
smoother, creamier and thicker than typical soft serve or hard-packed ice cream products. We serve the frozen custard
as vanilla and a flavor of the month in cups and cones and Spoonbenders, a mix of custard and toppings.
The breakfast menu is centered around Hatch
Valley Green Chile Burritos made with our own proprietary green chile recipe using roasted green chiles sourced exclusively from
Hatch Valley, New Mexico, eggs, potatoes, and cheese offered with the choice of bacon, sausage or chorizo. We also offer a premium
coffee made by Daz Bog, a Colorado-based coffee roaster, and pure 100% orange juice.
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Marketing & Advertising
Bad Daddy’s Burger Bar
Our marketing strategy for Bad Daddy’s
Burger Bar focuses on iconic, in-store merchandising materials and local store marketing to the surrounding trade area around each
restaurant, including public relations and community-based events. We generally do not focus on large media buys or
“traditional” advertising, but on the in-store customer experience, building word-of-mouth reputation and recommendations
and local public relations based on prior and recent awards and recognitions received by Bad Daddy’s. We have recently supplemented
this with additional investments in social and digital media using third party resources who specialize in highly targeted advertisements
on social media and digital platforms. We additionally use public relations, and trade area specific direct mail materials, particularly
in support of new restaurant openings, to drive trial and initial awareness.
Good Times Burgers & Frozen Custard
Our marketing strategy for Good Times focuses
on: 1) driving same store restaurant sales through attracting new customers and increasing the frequency of visits by current customers;
2) communicating specific product news and attributes to build strong points of difference from competitors; and 3) communicating
a unique, strong and consistent brand personality.
Media is an important component of building
our brand awareness and distinctiveness. We spent most of our broadcast advertising dollars on radio advertising during
fiscal 2020 and fiscal 2019. We augment our broadcast advertising with a social media presence that affords us a higher
level of engagement with current customers and an increased level of product giveaways to support high sales opportunity products.
As with Bad Daddy’s, we have recently supplemented our legacy advertising approach with additional investments in social
and digital media using third party resources who specialize in highly targeted advertisements on social media and digital platforms.
Operations
We maintain separate operating teams for
each of our concepts and have extensive operating, training and quality control systems in place.
Restaurant Management
Bad Daddy’s Burger Bar was developed
as a chef-driven concept and utilizes a team of three or four managers in our operations at most restaurants. Managers are
cross-trained in back of the house skills (prep, kitchen positions and line management), front of the house service positions (host,
server and bar) and all management functions, however each manager is assigned one or more specific areas of responsibility over
which they have “ownership” and direct accountability for results. Our managers at each restaurant participate in a
bonus pool for each restaurant based on a combination of restaurant sales, income, and specific financial and operational objectives.
As a full-service concept, our operating leadership structure for Bad Daddy’s Burger Bar operations is distinct and separate,
including a separate operations leader, from our Good Times operations team as the experience, qualifications and compensation
of team members are significantly different between the quick service and full service segments of the industry. Although this
is the case, we have combined recruiting into a single shared services capability and believe that long-term our training capabilities
for the brands will similarly be combined into single shared services capability
Each Good Times restaurant employs a general
manager, generally one two three hourly assistant managers, up to four hourly shift managers and approximately 10 to 20 non-management
team members, most of whom work part-time during three shifts. Most of our shift managers, assistant managers, and general managers
are internally promoted from team member positions, and in order to become a shift manager, an eight- to ten-week program over
which the team member becomes fully capable on all phases of the operation, is used to train a new shift manager. Ongoing training
and development is provided as necessary. We believe that incentive compensation of our restaurant managers is essential to the
success of our business. Accordingly, our general managers and assistant managers in each restaurant participate in a bonus program
based upon meeting financial, customer service and quality performance objectives tied to a monthly scorecard of measures.
Operational and Management Systems and
Processes
We have implemented highly-effective operating
systems and processes relative to those in the industry for both of our concepts. Detailed processes have been developed
for all responsibilities that drive consistency across our system of restaurants and performance against our standards within different
day parts. We utilize a combination of industry-leading labor programs and proprietary algorithms to determine optimal
staffing needs of each restaurant based on its actual customer flow and demand. We also employ several additional operational
tools to continuously monitor and improve speed of service, food waste, food quality, sanitation, financial performance and employee
development. 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.
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We use several sources of customer feedback
to evaluate each restaurant’s service and quality performance, including an extensive secret shopper program, telephone surveys,
website comments and a customer feedback tool that aggregates all social media comments as well as store by store surveys each
week for each restaurant. We believe that information will assist us in evaluating opportunities for improved execution of the
customer experience.
Training
We strive to maintain quality and consistency
in each of our restaurants for both Good Times and Bad Daddy’s through the careful training and supervision of our restaurant
leadership team members and the establishment of, and adherence to, high standards relating to personnel performance, food and
beverage preparation and maintenance of our restaurants. Each manager must complete an eight- to ten-week training program,
be certified on several core processes and is then closely supervised to show both comprehension and capability before they are
allowed to manage autonomously. We have a defined weekly and monthly goal-setting process around service, employee
development, financial management and store maintenance goals for every restaurant. Additionally, we have a library
of video training tools to drive training efficiencies and consistency at both brands.
Prior to opening a new restaurant, a training
and opening team travels to the new restaurant location to prepare for an intensive training program for all team members hired
for the new restaurant opening. Part of the training team remains on-site for a period after the opening of the restaurant while
an additional team provides several weeks of support following opening.
Recruiting and Retention
At Bad Daddy’s we seek to seek to
hire experienced restaurant managers and operating partners. We support employees by offering competitive wages and
benefits, including a 401(k) plan, medical insurance, and incentive plans at every level of management that are tied to performance
against key goals and objectives. We motivate and prepare our employees by providing them with opportunities for increased
responsibilities and advancement. We also provide various other incentives, including paid time off, car allowances,
monthly performance bonuses and referral bonuses. We have implemented an online screening and hiring tool that has proven
to reduce hourly employee turnover.
Franchising
For Bad Daddy’s Burger Bar, we have
prepared forms of area rights and franchise agreements, and presently have one existing franchise agreement in force. We anticipate
that a franchisee will typically pay a royalty of 4% to 5% of net sales and will participate in an advertising fund and local advertising
by contributing up to 2% of net sales. Initial development and franchise fees are projected to be $35,000 per
restaurant. We estimate that it will cost a Bad Daddy’s Burger Bar franchisee $590,000 to $1,382,000 to open a
3,500 to 4,000 square foot restaurant in an in-line or end-cap retail center, based on our knowledge of the development costs of
the existing Bad Daddy’s Burger Bar restaurants. We are not currently actively soliciting new franchisees but are assessing
potential future growth through the development of franchised Bad Daddy’s restaurants.
For Good Times, we have previously prepared
forms of area rights and franchise agreements and advertising material to be utilized in soliciting prospective franchisees. We
have historically sought to attract franchisees that are experienced restaurant operators, are well capitalized and have demonstrated
the ability to develop one to five restaurants. We review sites selected for franchises and monitor performance of franchise
units. Currently, we are not actively soliciting new franchisees but are assessing potential future growth through the development
of franchised Good Times restaurants.
We currently have one Bad Daddy’s
franchise agreement for one restaurant in South Carolina and a license agreement for a Bad Daddy’s location in the Charlotte
Douglas International Airport. We currently have six Good Times franchise agreements in the greater Denver metropolitan area and
two dual-branded franchised restaurants operate in Wyoming. In addition, seven joint-venture restaurants are operating
in the Denver metropolitan area media market.
We actively work with and monitor our franchisees
to ensure successful franchise operations as well as compliance with our systems and procedures. We advise the franchisee
on menu, management training and marketing. On an ongoing basis we conduct standards reviews of all franchise restaurants
in key areas including product quality, service standards, restaurant cleanliness and sanitation and food safety.
Management Information Systems
The systems in our restaurants are designed
in a manner to minimize the amount of time our managers spend on administrative tasks. We utilize up-to-date versions of a leading
point-of-sale system in each of our company-owned restaurants that captures transaction-level data required to support information
about sales, product mix, and average check. Configuration of restaurant point-of-sales systems is performed by our technology
share service capability.
We use a cloud-based back-office solution
across both brands that collects sales, labor and cash data from the restaurant point-of-sale system in near real-time and is the
primary source of capture for inventory and supply chain management information. This back-office solution interfaces
with our primary financial accounting systems and provides all levels of management with relevant daily, weekly and monthly reports
across substantially all store-level income and expense categories.
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Food Preparation, Quality Control &
Purchasing
We believe that we have excellent food
quality standards relative to the industry. Our systems are designed to protect our food supply throughout the preparation
process. We inspect specific qualified manufacturers and work together with those manufacturers to provide specifications
and quality controls. Our operations management teams are trained in a nationally recognized comprehensive safety and
sanitation course specific to food service. Minimum cook temperature requirements, periodic line checks throughout the
day, and daily facilities checklists ensure the safety and quality of both burgers and other items we use in our restaurants.
We currently purchase 100% of the food
and paper supplies for our Good Times restaurants and the majority of the food and paper supplies for our Bad Daddy’s restaurants
from US Foods. In addition, we maintain multiple approved suppliers for all key components of our menu to mitigate risk and ensure
supply. Suppliers are chosen based upon their ability to provide (i) a continuous supply of product that meets all safety
and quality specifications, (ii) logistics expertise and freight management, (iii) product innovation and differentiation, (iv)
customer service, (v) transparency of business relationships and (vi) competitive pricing. Specified products are distributed
to all restaurants through US Foods under negotiated contracts directly to our restaurants two to four times per week depending
on restaurant requirements. We do not believe that the current reliance on these distributors will have any long-term
material adverse effect since we believe that there are a sufficient number of other suppliers from which food and paper supplies
could be purchased with little or no interruption in service. We do not anticipate any difficulty in continuing to obtain
an adequate quantity of food and paper supplies of acceptable quality and at acceptable prices. We monitor the primary commodities
we purchase and extend contract positions when applicable in order to minimize the impact of fluctuations in price and availability.
However, certain commodities, primarily ground beef, remain subject to market price fluctuations.
Employees
At September 29, 2020, we had approximately
2,318 employees of which 2,109 are hourly team members and 209 are salaried managers who working full time. Our set of values includes
Respect and Care for people, including all of our employees, and one of the dimensions of our business is Individual
Fulfillment. We strive to provide competitive salary and benefits, strong development opportunities, and a meaningful job or
career for all of our employees and believe that this has translated into good employee relations. None of our employees are covered
by a collective bargaining agreement.
COVID-19 Response
We took early action regarding employee
well-being in response to the COVID-19 pandemic, implementing comprehensive protocols to protect the health and safety of our employees
and guests. Remote work for corporate management and staff was adopted ahead of state and county requirements. We limited reductions
in scheduled hours for employees in our company-operated restaurants. For employees of our company-operated restaurants, we also
enhanced our benefits programs to offer expanded supplemental paid sick leave ahead of mandates in the majority of the state and
county mandates and in counties where sick leave is not mandated, waived employee cost-sharing for COVID-19 testing and moved our
tele-med offerings from telephone only to include virtual visits at the same copay cost. We believe that employee sentiment regarding
our response to the pandemic is very favorable.
Due to the COVID-19 pandemic, staffing
levels for each concept were adjusted to meet guest traffic determined by the then current state orders closing on-premise dining