Good Times Restaurants Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 2021
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 ☒
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 ☒
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 ☒ 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 ☒ 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 ☒
Accelerated filer ☐ Smaller reporting company ☒
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 ☒
As of March 30, 2021 (the last business day of our most recently completed second fiscal quarter), the aggregate market value of the 9,791,971 shares of common stock held by non-affiliates of the registrant was $38,286,607.
As of December 15, 2021, the registrant had 12,539,694 shares of common stock outstanding.
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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 2022
Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's
fiscal year ended September 28, 2021.
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business 3
Item 1A Risk Factors 16
Item 1B Unresolved Staff Comments 23
Item 2 Properties 24
Item 3 Legal Proceedings 24
Item 4 Mine Safety Disclosures 24
PART II
Item 6 [Reserved] 25
Item 7A Quantitative and Qualitative Disclosures About Market Risk 35
Item 8 Financial Statements and Supplementary Data 35
Item 9A Controls and Procedures 35
Item 9B Other Information 35
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 35
PART III
Item 10 Directors, Executive Officers and Corporate Governance 35
Item 11 Executive Compensation 36
Item 14 Principal Accountant Fees and Services 36
PART IV
Item 15 Exhibits, Financial Statement Schedules 37
Signatures 41
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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 15, 2021, we own, operate,
franchise, or license a total of forty-two Bad Daddy’s restaurants in seven states. We own and operate fourteen Bad Daddy’s
restaurants in North Carolina, twelve traditional Bad Daddy’s restaurants in Colorado and one non-traditional unit in Colorado where
Bad Daddy’s operates the kitchen for a local brewery under our brand, five in Georgia, three in South Carolina, two in Alabama,
two in Tennessee and one in Oklahoma. Of these restaurants, five 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, South Carolina 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 2021 and 2020, which ended on September 28, 2021 (“fiscal 2021”) and September 29,
2020 (“fiscal 2020”), respectively, cover periods of 52 full calendar weeks in fiscal 2021 and 53 full calendar weeks in fiscal
2020.
Fiscal 2021 Financial & Brand Highlights
· The Good Times brand had a 10.5% increase in same store sales for fiscal 2021.
· One company-owned Good Times restaurant closed during fiscal 2021.
· We ended fiscal 2021 with $8.9 million in cash and no long-term debt.
(same store sales for each brand represents the comparison
of restaurant sales in the current year, to the same comparable weeks in the immediately preceding fiscal year for those stores open for
at least 18 months).
Recent Developments
COVID-19 Pandemic: The global crisis resulting from the
spread of COVID-19 had a substantial impact on our restaurant operations for the fiscal years ended September 28, 2021 and September 29,
2020.
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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. Although our dining rooms were re-opened in early June 2020, all restaurants continued to operate at
some reduction of capacity, whether driven by explicit capacity reductions under government orders, or due to social distancing protocols
that were either mandated by the same government orders or our internal protocols designed to maintain a safe foodservice environment,
both for our employees and for our customers, until May 2021.
During portions of the month of November 2020 through early
January 2021, all of the Company’s Bad Daddy’s Burger Bar restaurants in Colorado were open only for limited outdoor dining,
delivery and carry-out service, with indoor dining rooms once again closed by government orders. In early January 2021, we re-opened these
dining rooms, with limited occupancy, as local regulations allowed. Our dining rooms in all other states in which Bad Daddy’s has
operations were open, at reduced capacity, during this time. Presently, all of our Bad Daddy’s restaurants are allowed to operate
at full capacity although staffing constraints throughout the year, primarily in the third and fourth fiscal quarters, and presently,
have caused some restaurants to operate at less than full capacity.
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, including the recent acceleration of the spread
of the Delta and Omicron variants of COVID-19; neither are we able to predict how the pandemic will evolve nor how various government
entities will respond to its evolution. Should additional dining room closures occur, our business would 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. Furthermore, although certain available vaccines may reduce the risk of further government restrictions, there is no guarantee
that the vaccine will be effective in eradicating the virus, additional mutations or variants of the virus may be resistant to any vaccine,
and the length of the ongoing pandemic may change consumer behavior such that potential customers may still choose to reduce or eliminate
in-restaurant dining. Customer and employee attitudes towards the vaccine, particularly in light of OSHA’s recently released Emergency
Temporary Standard related to vaccination and testing, may impact our business, including reducing the pool of employees willing to work
and, should vaccination be required by regulation for customers to visit our restaurants, customer traffic may be negatively affected.
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 have resulted in product shortages and could result in future product shortages and in-turn could
require us to serve a limited menu, restrict the 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, including recent industry-wide labor shortages, the impact
and duration of which are uncertain, 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 during fiscal 2020, including temporarily reducing employee pay, reductions in workforce, 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. We applied for full forgiveness of our PPP loans, including those of our subsidiaries, on April
30, 2020 and received confirmation of full forgiveness of all such loans during June 2021.
We currently have a meaningful cash balance and generated significant
cash flow from operations during fiscal 2021. We used a portion of this cash balance to repurchase Company stock by means of the Tender
Offer as described below and paid down approximately $5.5 million of debt during the year. While we believe that we will continue to have
adequate working capital to meet our current needs, should business decline significantly, we would not likely choose to, and we may not
be able to, take some of the same actions as we took during fiscal 2020 to increase our liquidity as they would negatively impact the
long-term performance of the business. Furthermore, the COVID-19 pandemic is adversely affecting the availability of liquidity generally
in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially
the longer various tangential impacts of the COVID-19 pandemic last.
Tender Offer: On August 13, 2021, the Company commenced
a tender offer (the “Tender Offer”) to purchase up to 1,413,000 shares of its common stock at a price per share of $4.60.
On September 10, 2021, at 11:59p.m., the offer expired and the Company subsequently accepted for payment, at a purchase price of $4.60
per share, a total of 333,241 shares, at an aggregate cost of approximately $1,532,908, excluding fees and expenses relating to the Tender
Offer.
Debt: The Company maintains a credit agreement with Cadence
Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $8,000,000 with a maturity date of
January 31, 2023 (the “Cadence Credit Facility”). As amended by the various amendments, the Cadence Credit Facility accrues
commitment fees on the daily unused balance of the facility at a rate of 0.25%. As of September 28, 2021, any borrowings under the Cadence
Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate,
which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence bank publicly-announced prime rate, and (c) LIBOR plus 1.0%,
or (ii) LIBOR, with a 0.250% floor, plus 3.5%. Interest is due at the end of each calendar quarter if the Company selects to pay interest
based on the base rate and at the end of each LIBOR period if it selects to pay interest based on LIBOR. During the fiscal year ended
September 28, 2021, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 3.75%.
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The Cadence Credit Facility, as amended, contains certain affirmative
and negative covenants and events of default that the Company considers customary for an agreement of this type, including covenants setting
a maximum leverage ratio of 5.15:1, a minimum pre-distribution fixed charge coverage ratio of 1.25:1, a minimum post-distribution fixed
charge coverage ratio of 1.10:1 and minimum liquidity of $2.0 million. As of September 28, 2021, the Company was in compliance with all
financial covenants under the Cadence Credit Facility.
As a result of entering into the Cadence Credit Facility and
the various amendments, the Company paid loan origination costs including professional fees of approximately $308,500 and is amortizing
these costs over the term of the credit agreement.
The obligations under the Cadence Credit Facility are collateralized
by a first-priority lien on substantially all of the Company’s assets.
As of September 28, 2021, there were no outstanding borrowings
against the facility. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters
of credit issued under the facility. As of September 28, 2021, the outstanding face value of such letters of credit was $157,500.
On May 7, 2020, Good Times and three of its wholly-owned subsidiaries,
BDI, Drive Thru, and BDC (each a “Borrower”), entered into unsecured loans in the aggregate principal amount of $11,645,000
(the “Loans”) with Cadence Bank, N.A. (the “Lender”) pursuant to the PPP.
In June 2021, the SBA approved forgiveness in full of the Loans,
including accrued interest, in the aggregate amount of $11,778,226, which was recognized as gain on debt extinguishment in the fiscal
year ended September 28, 2021. The principal and accrued interest balance on each of these Loans is now zero, as of the forgiveness date
specific to each of the Company’s and its subsidiaries’ Loans.
Total interest expense on notes payable and capital leases was
$269,000 and $755,000 for fiscal 2021 and fiscal 2020, respectively.
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 $32. The lunch daypart (open until 2pm) represents approximately 33% and the happy hour and
dinner dayparts (2pm until close) represent approximately 67% of restaurant sales. Off-premise sales, including take-out, delivery and
curbside pickup, accounted for approximately 33% of all system-wide sales in Fiscal 2021, an increase of 3% over Fiscal 2020 and 22% over
Fiscal 2019. This change in on-premise to off-premise sales was initially a result of COVID-19 closures and capacity reductions but we
have seen demand for off-premise sales remain strong even as customers have become more comfortable with indoor dining. Off-premise sales
average $29 per transaction while on-premise sales average $33 per transaction.
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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 2021 average restaurant sales were
originally projected to be approximately $2.1 million per restaurant based upon historical performance with no planned new restaurant
openings, which would have resulted in average sales per square foot of approximately $552. We believe this is a key metric indicating
the strength and expansion potential of the concept. Despite COVID-19 related closures and capacity restrictions, we achieved average
annual restaurants sales of $2.4 million in Fiscal 2021, generating average sales per square foot of approximately $619 and we opened
two restaurants in the second half of fiscal 2021.
While sharing common design elements, each restaurant has unique
features intended to represent the local trade area of each Bad Daddy’s 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.
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, Oklahoma,
North Carolina, South Carolina and Tennessee.
Good Times Burgers & Frozen Custard
Good Times is a drive-thru, quick-service hamburger-focused
restaurant concept offering fresh, 100% all-natural beef and chicken. 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, consistently
prompt service, and order accuracy. We support our quality position by using only all-natural beef and chicken. 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 makes use of various media but
primarily communicate these advantages and promotions through the use of terrestrial radio and digital audio streaming.
Our average per person check is approximately $10.50, 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 such as McDonalds, Wendy’s and Burger King. 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-thru concept,
as all our restaurants have at least one drive-thru 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-thru 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-thru 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 may enter restaurants with dining rooms to place orders and at the
walk-up windows in those locations without dining rooms. Our patios are currently open for outdoor dining.
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).
Same store sales increased 10.5% in fiscal 2021 and 7.9% in fiscal 2020.
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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 enhanced by superior quality ingredients
and a focus on the specific elements of service relevant to the concept that deliver an exceptional experience to each guest. Bad Daddy’s
resonates with consumers by consistently executing high-quality, scratch-made 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 drive-thru quick-service chain
in our region with an all-natural platform. We do not offer a low-priced value 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.
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.
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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.
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 2021 primarily due to increased foot traffic throughout the COVID-19 dining room closures
at full-service and fast casual restaurants and price increases of approximately 8.0%. Our compound annual same-store sales growth rate
was approximately 4.7% from fiscal 2015 to fiscal 2021. 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 $2.4 million for fiscal 2021. We opened two traditional restaurants each in fiscal 2021 and fiscal 2020 and an additional non-traditional
restaurant in the tap room of the Tivoli brewery in Denver, Colorado. 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 long-term expansion potential, both in our
existing markets and in new markets, though we expect such expansion to be disciplined and financed primarily from operating cash flow
from the Bad Daddy’s business.
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:
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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 $70,000,
with a high concentration of daytime employment, specialty retail and entertainment venues. 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.
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
120 to 150 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 15, 2021, we operate, franchise or license a
total of forty-two 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.
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Company-Owned/Co-Developed/Joint-Venture
Bad Daddy’s Burger Bar Good Times Burgers & Frozen Custard Total
South Carolina 3 3 - - 3 3
Tennessee 2 2 - - 2 2
One company-owned Good Times restaurant closed, and the property was subleased during
fiscal 2021. Additionally, one company-owned Good Times restaurant closed, and the property was subleased during fiscal 2020.
We opened two company-owned Bad Daddy’s restaurants during each of fiscal 2021
and fiscal 2020.
Franchise/License
Bad Daddy’s Burger Bar Good Times Burgers & Frozen Custard Total
North Carolina 1 1 - - 1 1
South Carolina 1 1 - - 1 1
Non-Traditional*
Bad Daddy’s Burger Bar Good Times Burgers & Frozen Custard Total
Colorado 1 - - - 1 -
* The non-traditional Bad Daddy’s Burger Bar location
is a location where we operate the kitchen under our Bad Daddy’s brand for a local brewery’s taproom.
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, bison 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 Peanut Butter 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.
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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.
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 2021 and fiscal
2020. 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.
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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
between one and 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.
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 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.
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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.
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.
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Employees
At September 28, 2021, we had approximately 2,230 employees
of which 2,011 are hourly team members and 219 are salaried managers 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 and/or limiting occupancy. All
of our dining rooms at Bad Daddy’s are currently open, and we are currently operating our restaurants to their full capacity, with
some constraints due to the availability of qualified staff. We continue to monitor consumer, employer, and regulatory behaviors related
to the ongoing impacts of COVID-19 and adjust our operations accordingly to provide a safe environment for our customers and employees,
and to be compliant with appropriate regulatory requirements.
Competition
The restaurant industry, including both limited service and
full-service segments, is highly competitive. Bad Daddy’s Burger Bar competes with both local, regional, and national gourmet, “better
burger” concepts as well as more legacy grill and bar concepts. As such, Bad Daddy’s competes with both full-service
and limited service better burger restaurants. There are other burger-centric fast casual concepts that operate at a lower
average customer check than Bad Daddy’s Burger Bar and others in both fast casual and full-service formats that operate with a higher
average customer check. We believe that we offer sufficient price choice to be able to compete effectively in the full range of such concepts. We
believe that Bad Daddy’s Burger Bar has an advantage in the premium quality of our ingredients, unparalleled ability for guests
to customize their order, distinctiveness of its atmosphere and the bold, unique flavors of our scratch-made, chef-inspired menu offerings. Nevertheless,
Bad Daddy’s Burger Bar may be at a competitive disadvantage to other restaurant chains with greater name recognition and operating
mass.
Good Times competes with many other hamburger-oriented
quick-service 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 we do. In-N-Out, a California-based, burger-focused
quick-service restaurant concept, has expanded into the Colorado market and Whataburger, a Texas-based burger-focused quick-service restaurant
concept has announced its intent to expand into the Colorado market. Double drive-thru restaurant chains such as Rally’s Hamburgers
and Checker’s Drive-In Restaurants, which currently operate double drive-thru restaurants in various markets in the United States,
are not currently operating in Colorado. We are aware of only two significant quick-service competitors offering frozen custard as a primary
menu item operating in the Colorado market and both have a significant presence in Midwestern markets that may be targeted for expansion.
Additional “fast casual” hamburger restaurants are being developed in the Colorado market; however, these generally do not