-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JKS7lNZAo+zCq6B8jrGRvodiYuN1radSP0XP+IbmfwhdtbJv26FkLDLvq6pGbNVX Zq1RUzoD+QBKhuGQVRzzxw== 0000825324-96-000011.txt : 19960517 0000825324-96-000011.hdr.sgml : 19960517 ACCESSION NUMBER: 0000825324-96-000011 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOOD TIMES RESTAURANTS INC CENTRAL INDEX KEY: 0000825324 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 841133368 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18590 FILM NUMBER: 96564696 BUSINESS ADDRESS: STREET 1: 8620 WOLFF CT STE 330 CITY: WESTMINSTER STATE: CO ZIP: 80030 BUSINESS PHONE: 3034274221 MAIL ADDRESS: STREET 1: 8620 WOLFF COURT STREET 2: SUITE 330 CITY: WESTMINSTER STATE: CO ZIP: 80030 FORMER COMPANY: FORMER CONFORMED NAME: PARAMOUNT VENTURES INC DATE OF NAME CHANGE: 19900205 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended:March 31, 1996 Commission File Number: 0-18590 GOOD TIMES RESTAURANTS INC. (Exact name of registrant as specified in its charter) NEVADA (State or other jurisdiction of incorporation or organization) 84-1133368 (I.R.S. Employer Identification No.) 8620 WOLFF COURT, SUITE 330, WESTMINSTER, CO 80030 (Address of principal executive offices) (Zip Code) (303) 427-4221 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Total number of shares of common stock outstanding at March 31, 1996. 6,314,824 SHARES OF COMMON STOCK, .001 PAR VALUE Form 10-QSB Quarter Ended March 31, 1996 INDEX PAGE PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets - March 31, 1996 and September 30, 1995 Consolidated Statements of Operations - For the three months ended March 31, 1996 and 1995 and for the six months ended March 31, 1996 and 1995 Consolidated Statements of Cash Flow - For the three months ended March 31, 1996 and 1995 and for the six months ended March 31, 1996 and 1995 Notes to Financial Statements ITEM 2. Management's Discussion and Analysis PART II - OTHER INFORMATION ITEMS 1 through 6. Signature GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, September 30, 1996 1995 CURRENT ASSETS: Cash and cash equivalent $ 432,000 $ 767,000 Receivables 610,000 105,000 Inventories 47,000 70,000 Prepaid expenses and other 189,000 233,000 Total current assets 1,278,000 1,175,000 PROPERTY AND EQUIPMENT, at cost: Land and building 2,534,000 2,574,000 Leasehold improvements 2,936,000 2,763,000 Fixtures and equipment 3,181,000 3,118,000 8,651,000 8,455,000 Less accumulated depreciation and amortization (1,609,000) (1,305,000) 7,042,000 7,150,000 OTHER ASSETS: Assets held for sale -0- 61,000 Note Receivables 738,000 744,000 Deposits & Other 120,000 155,000 858,000 960,000 TOTAL ASSETS $9,178,000 $9,285,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 616,000 $ 298,000 Accounts payable 449,000 611,000 Accrued liabilities 738,000 1,061,000 Total current liabilities 1,803,000 1,970,000 LONG-TERM DEBT, net of current maturities 870,000 378,000 DEFERRED LIABILITIES 360,000 216,000 MINORITY INTERESTS IN PARTNERSHIPS 2,012,000 1,735,000 March 31, September 30, 1996 1995 STOCKHOLDERS' EQUITY: Common stock, $.001 par value; 50,000,000 shares authorized, 6,314,824 shares issued and outstanding as of March 31, 1996 and 6,939,824 issued and outstanding as of December 31, 1995 7,000 7,000 Capital contributed in excess of par value 10,844,000 11,683,000 Note receivable - shareholders -0- (881,000) Accumulated deficit (6,718,000) (5,823,000) Total stockholders' equity 4,133,000 4,986,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,178,000 $9,285,000 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended March 31, March 31, 1996 1995 1996 1995 NET REVENUES: Restaurant sales, net $2,924,000 $4,798,000 $6,236,000 $9,851,000 Franchise revenues, net 34,000 24,000 54,000 80,000 Total revenues 2,958,000 4,822,000 6,290,000 9,931,000 RESTAURANT OPERATING EXPENSES: Food & paper costs 1,122,000 1,653,000 2,357,000 3,316,000 Labor, occupancy & other 1,527,000 2,434,000 3,147,000 4,829,000 Depreciation & amortization 195,000 194,000 365,000 371,000 Total restaurant operating costs 2,844,000 4,281,000 5,869,000 8,516,000 INCOME FROM RESTAURANT OPERATIONS 114,000 541,000 421,000 1,415,000 OTHER OPERATING EXPENSES: Selling, general & administrative expenses 644,000 919,000 1,362,000 1,676,000 Estimated operating loss from March 31, 1995 through June 30, 1995 on line of business to be sold -0- 250,000 -0- 250,000 Loss on sale of RTC restaurant -0- 125,000 -0- 125,000 Total other operating expenses 644,000 1,294,000 1,362,000 2,051,000 INCOME (LOSS) FROM OPERATIONS (530,000) (753,000) (941,000) (636,000) OTHER INCOME & (EXPENSES) Minority income (expense), net 78,000 (31,000) 104,000 (100,000) Interest, net (19,000) (15,000) (38,000) (22,000) Other, net (10,000) (5,000) (19,000) -0- Total other income & (expenses) 49,000 (51,000) 47,000 ($122,000) NET INCOME (LOSS) ($481,000) ($804,000) (894,000) ($758,000) NET INCOME (LOSS) PER SHARE ($0.07) ($0.12) ($0.13) ($0.11) WEIGHTED AVERAGE SHARES OUTSTANDING 6,651,362 6,898,156 6,799,797 6,837,714
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Six Months Ended March 31, March 31, 1996 1995 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($481,000) ($804,000) ($894,000) ($758,000) Depreciation and amortization 258,000 313,000 497,000 593,000 Changes in operating assets & liabilities-- (Increase) decrease in: Prepaids & receivables (554,000) (173,000) (487,000) (283,000) Inventories 28,000 25,000 23,000 (25,000) Other assets (83,000) (236,000) (410,000) (139,000) Opening expenses -0- (46,000) (70,000) (150,000) (Decrease) increase in: Accounts payable (26,000) (134,000) (164,000) (226,000) Accrued interest -0- -0- -0- (12,000) Accrued property taxes 17,000 26,000 59,000 71,000 Accrued payroll & P/R taxes (21,000) (20,000) (47,000) 6,000 Deposits -0- -0- -0- -0- Other accrued liabilities/deferred income 202,000 892,000 (22,000) 984,000 Net cash provided by (used in) operating activity (660,000) (207,000) (1,515,000) 61,000 CASH FLOWS FROM INVESTING ACTIVITIES: (Purchase) sale - FF&E, land, building & improvements 259,000 896,000 (220,000) 800,000 CASH FLOWS FROM FINANCING ACTIVITIES: Debt incurred (paid) 218,000 (352,000) 832,000 (339,000) Minority interest 202,000 197,000 526,000 (4,000) Paid in capital activity -0- -0- 41,000 26,000 Net cash provided by (used in) 420,000 (155,000) 1,399,000 (317,000) financing activities INCREASE (DECREASE) IN CASH $ 19,000 $ 534,000 ($336,000) $ 544,000
1. UNAUDITED FINANCIAL STATEMENTS: In the opinion of management, the accompanying unaudited consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position of the Company as of March 31, 1996, the results of its operations and its cash flow for the three month period ended March 31, 1996 and for the six month period ended March 31, 1996. Operating results for the three month period ended March 31, 1996 and for the six month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending September 30, 1996. The consolidated balance sheet as of September 30, 1995 is derived from the audited financial statements, but does not include all disclosures required by generally accepted accounting principles. As a result, these financial statements should be read in conjunction with the Company's Form 10-KSB/A for the fiscal year ended September 30, 1995. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE COMPANY General On July 27, 1992, the stockholders of Good Times Restaurants Inc. (the "Company") approved a merger with Round The Corner Restaurants, Inc. ("RTC"). For financial statement purposes, RTC was considered the acquiring company and the transaction was treated as a purchase by RTC of the Company, effective August 1, 1992. For legal purposes, however, the Company remained the surviving entity and the combined entity retained the Company's capital structure. In February 1993, the Company's operations and management were reorganized to allow Good Times Drive Thru Inc. ("Drive Thru") and RTC to function as separately accountable entities and to allow RTC's and Drive Thru's managements to focus exclusively on their respective businesses. The Company provided administrative and accounting support to Drive Thru and RTC in fiscal 1995 and charged monthly management fees of $70,000 and $35,000, respectively, for such services. On September 29, 1995, the Company completed the sale of RTC to Hot Concepts Management Group, L.L.C. and ceased providing these services to RTC. The Company does not anticipate a material reduction in its general and administrative expenses due to the sale of RTC. However, the Company is able to provide management services to Drive Thru without increasing general and administrative expenses in spite of the increase in the number of Drive Thru units. Management has begun to aggressively reduce general and administrative expenses reflecting its operation as a one market company. Beginning in fiscal 1996, the administrative and accounting functions of the Company will be consolidated with Drive Thru's operations and no management fees will be charged to Drive Thru. The following presents certain historical financial information of the operations of the Company. This financial information includes the combined operations of the Company, Drive Thru, and RTC for the three month period and six month period ended March 31, 1995 and the results of the Company and Drive Thru for the three month period and six month period ended March 31, 1996. Results of Operations Net Revenues. Net revenues for the three months ended March 31, 1996, decreased $1,864,000 (39%) to $2,958,000 from $4,822,000 for the same prior year period. This decrease is attributable to the sale of RTC in fiscal 1995 and the elimination of RTC's results from the Company's consolidated financial results. In the three month period ended March 31, 1995, RTC had net revenues of $1,613,000. There was a decrease of $251,000 (7.8%)in net revenue of Drive Thru to $2,958,000 for the three months ended March 31, 1996 from $3,209,000 for the same prior year period. The Company's additional revenues from Good Times units not open for the full prior year period were significantly offset by a decline in same store sales for company-owned and joint-venture Drive Thru units of approximately $390,000 (17.1%) for the three month period ended March 31, 1996 from the comparable prior year period. January 1996 revenues were adversely impacted by severe weather and aggressive price discounting by the major hamburger chains and the prior year period was the highest revenue per store period in the Company's history. Drive Thru had twenty-six units open at the end of the period of which eight were franchised units, ten joint venture units and eight wholly-owned units compared to twenty units open at the end of the prior year period of which five were franchised units, seven joint-venture units and eight wholly-owned units. (One company-owned Good Times unit was sold to franchisees in each of March, 1995 and February, 1996 and are included in the total of company-owned stores for the prior year period.) Franchise revenue increased $10,000 for the three months ended march 31, 1996 due to an increase in franchise fee income over the same prior year period. Net revenues for the six months ended March 31, 1996 decreased $3,641,000 (36.7%) to $6,290,000 from $9,931,000 for the same prior year period. The decrease is attributable to $3,563,000 from the sale of RTC in fiscal 1995 and the sale of two Good Times restaurants to franchisees that generated $594,000 in revenues in fiscal 1995. Same store sales for Company operated restaurants open for the full six month periods in 1995 and 1996 decreased $740,000 or 15.4%. Franchise revenue decreased $26,000 in the six months ended March 31, 1996 from the same prior year period due to lower franchise and development fees from new stores. The Company opened two new Drive Thru units in the six months ended March 31, 1996. Food and Paper Costs. Food and paper costs were 38.4% of net restaurant sales for Drive Thru for the three months ended March 31, 1996, compared to 37.3% for the prior year period. The increase in food and paper costs is attributed to an increase in discounting of Drive Thru's products that was made necessary in order to remain price competitive with Drive Thru's major competition. McDonald's, Burger King, and Wendy's have significantly increased their promotions of special, limited- time discounts on popular hamburger items such as "Big Macs", "Quarter Pounders", "Whoppers", and combo meals featuring a hamburger item, french fries and drink. In response, Drive Thru has increased the size of its regular french fries and offered a larger drink in its combo meals while raising prices nominally. Whereas management believes that this change provides the customer with a better value than its competitors' offerings, such change has resulted in higher food costs on a net sales basis. Management anticipates a slight decrease in discounted sales for the remainder of the fiscal year due to seasonal promotions and less discounting. Food and paper costs increased to 37.8% of net restaurant sales for the six months ended March 31, 1996 for Drive Thru compared to 36.3% for the same prior year period. The increase is attributable to higher levels of promotional sales and discounting in response to competitive "price wars" and higher seasonal promotion. Income From Restaurant Operations. For the three months ended March 31, 1996, income from restaurant operations decreased to $114,000 from $541,000 for the same prior year period. Of the prior year amount, $487,000 was attributable to income from restaurant operations of Drive Thru and $54,000 was attributable to the income from operations of RTC. Drive Thru experienced a decrease of $373,000 in income from restaurant operations as a result of declining store sales and increased labor costs. Drive Thru's labor costs as a percentage of net restaurant sales increased to 35.8% in the three months ended March 31, 1996 from 29.2% of net restaurant sales in the same prior year period, reflecting higher discounting, lower per store sales, and an increase in average hourly wages due to a very competitive labor market. Labor costs as a percentage of restaurant sales are expected to decrease in the remainder of the fiscal year from higher average sales per store due to seasonality and from recent changes in the amount of wages and salaries allocated per store. For the six months ended March 31, 1996, income from restaurant operations decreased to $421,000 from $1,415,000 for the same prior year period. Of the prior year amount, $267,000 was attributable to RTC. The decrease in income from restaurant operations of Drive Thru is attributable to lower average sales per restaurant and higher labor costs as a percentage of revenues. Income (Losses) From Operations. The Company had a loss from operations of ($530,000) in the three months ended March 31, 1996 compared to a loss from operations of ($753,000) for the three months ended March 31, 1995. Of the prior year amount, loss from operations at Drive Thru was ($245,000) for the three months ended March 31, 1995 and RTC's loss from operations was ($508,000). The losses from operations are primarily a result of Drive Thru's significantly lower income from restaurant operations (3.9% of net restaurant sales) compared to the prior year period (15.3% of net restaurant sales). Selling, general and administrative expenses decreased $275,000 for the three months ended March 31, 1996 compared to the same prior year period due to reductions in administrative expenses and staff reductions. For the six months ended March 31, 1996, losses from operations increased to ($941,000) from ($636,000) in the same prior year period. Of the prior year amount, ($465,000) was attributable to RTC and ($171,000) was attributable to Drive Thru. The increased loss at Drive Thru for the six months ended March 31, 1996 is attributable to lower average sales per restaurant and higher labor costs compared to the prior year period. Net Income (Loss). The net loss for the Company was ($481,000) for the three months ended March 31, 1996 compared to a net loss for the Company of ($804,000) for the comparable prior year period. The net loss for the Company for the three months ended March 31, 1995 included a net loss of ($257,000) for Drive Thru and RTC's net loss of ($547,000). Minority interest expense decreased $109,000 in the three months ended March 31, 1996 from the same prior year period, attributable to the limited partners' share of restaurant operating losses. For the six month period ended March 31, 1996, the net loss increased $136,000 to ($894,000) from ($758,000) in the same prior year period. Of the prior year loss, ($543,000) was attributable to RTC and ($215,000) was attributable to Drive Thru. Minority interest expense decreased $204,000 in the six months ended March 31, 1996 from the same prior year period. Liquidity and Capital Resources As of March 31, 1996, the Company and Drive Thru had $432,000 cash and marketable securities on hand. The Company had a combined working capital deficit of ($525,000) including $616,000 of current maturities of long-term debt. Because restaurant sales are collected in cash and accounts payable for food and paper products are paid two to four weeks later, restaurant companies often operate with working capital deficits. Included in current assets are receivables of $610,000 of which $400,000 is from the sale of a restaurant to a franchisee, due April 30, 1996 and $150,000 is due from a joint venture partner in a restaurant and is expected to be received in June, 1996. The Company and Drive Thru's cash position increased $19,000 for the three-month period ended March 31, 1996. Approximately $245,000 of the current maturities of long-term debt is attributable to the short-term prepayment of a capital lease obligation to Capital Associates International, Inc. ("Capital Associates"). In 1995, Drive Thru entered into an equipment lease line of credit in the amount of $2 million with Capital Associates, of which it has utilized approximately $550,000 as of March 31, 1996. The line of credit required the Company and Drive Thru to maintain certain financial and operating criteria. One such requirement is that the Company and Drive Thru each maintain a net worth of at least $5.5 million. As a result of the losses incurred by the Company and Drive Thru in fiscal 1995, the Company and Drive Thru are in violation of that requirement and the Lessor has declared a technical event of default to have occurred. The Company is current on all payments to Capital Associates and negotiated the restructuring of this obligation to include the prepayment of one of the leases on April 30, 1996 and is no longer in technical default of the lease agreement. During the three months ended March 31, 1996, the Company sold one restaurant to a franchisee for $480,000 and received $100,000 in cash. The Company also entered into a $250,000 loan payable in full on March 7, 1997 unless the loan is converted into preferred common stock of the Company under an agreement currently being negotiated. Cash flows from investing activities reflect the sale of one restaurant's net assets of $378,000 and the purchase of restaurant assets of $119,000. Minority interest increased $202,000 from the development of one additional joint venture restaurant during the three month period. For the six months ended March 31, 1996, cash decreased $336,000. Cash used in operations was $1,515,000, cash used in investing activities was $220,000, and cash provided by financing was $1,399,000. The Company used all cash in investing activities for capital expenditures consisting primarily of expenditures for the development of new Good Times restaurants. The Company expects that capital expenditures will decrease in the future as additional Good Times restaurants are developed by franchisees. No new Drive Thru units are currently under construction. The Company expects an additional three franchised units to be opened by December 31, 1996. The Company entered into an agreement to lease or sell up to four under- performing restaurants to Steakout, King of Steaks, Inc. (see Item 5). The disposition of these restaurants is expected to increase cash flow from operations. The Company is also negotiating the sale of one joint-venture Drive Thru unit to a franchisee, which will provide additional cash from investing activities. Management does not anticipate the need for additional working capital for the remainder of the fiscal year and anticipates increasing its cash reserves. Neither the Company nor Drive Thru have any bank lines of credit. Impact of Inflation Drive Thru has not experienced a significant impact from inflation. It is anticipated any operating expense increases will be recovered by increasing menu prices to the extent that is prudent considering competition. Seasonality Revenues of Drive Thru are subject to seasonal fluctuation based primarily on weather conditions adversely affecting restaurant sales in January, February and March. GOOD TIMES RESTAURANTS, INC. & SUBSIDIARIES Part II. - Other Information Item 1, 3 & 4. Not Applicable. Item 2. Change in Securities On February 19, 1996 common shares outstanding decreased from the termination of Tom Gordon as Chief Financial Officer and cancellation of the Stock Purchase Agreement covering 212,500 shares of common stock. On February 19, 1996 the Board of Directors unanimously voted to cancel the Stock Purchase Agreements the Company entered into with Boyd Hoback and Robert Turrill covering 412,500 shares of common stock. The Stock Purchase Agreements have previously been filed on Form 8-K. Item 5. (a) The Company entered into a transaction on March 29, 1996 whereby it agreed to lease two initial restaurants to Steakout, King of Steaks Restaurants, Inc.("Steakout") for cash and ongoing rental payments. Depending upon certain sales performance criteria, Steakout has the option to acquire two additional Good Times restaurants. Steakout and its franchisees previously sub-leased four restaurants from Good Times in Las Vegas, Nevada and converted them to the Steakout format. Pursuant to the terms of the agreement, the Company has the right to reacquire the restaurants as a franchisee of Steakout and acquire the development rights for the Steakout concept for Colorado and Idaho or to sell the restaurants to Steakout for the net book value under a promissory note. (b) In February, 1996 the Company terminated Tom Gordon, its Chief Financial Officer, Treasurer and Secretary, and accepted his resignation from the Board of Directors, effective immediately. 115,000 incentive stock options expire 90 days after his termination. Susan Knutson, the Company's Controller, was elected Secretary/Treasurer. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit A: Letter Agreement between Good Times Restaurants Inc. and Steakout, King of Steaks Restaurants, Inc. (b) No Reports on Form 8-K. SIGNATURE Pursuant to the requirements of The Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOOD TIMES RESTAURANTS INC. DATE: May 14, 1996 BY: /s/ Boyd E. Hoback, President & Chief Financial Officer Boyd E. Hoback, President & Chief Executive Officer BY: /s/ Susan Knutson, Controller Susan Knutson, Controller EX-27 2
5 0000825324 ROBIN BOEFF 6-MOS SEP-30-1996 MAR-31-1996 432000 0 610000 0 47000 1278000 8651000 (1609000) 9178000 1803000 0 7000 0 0 4126000 9178000 6236000 6290000 2357000 5869000 1362000 0 (38000) (894000) 0 0 0 0 0 (894000) (0.13) (0.13)
EX-10.1 3 March 29, 1996 Steakout, King of Steaks Restaurants, Inc. Attention: Gary Schwalb, President 1800 Camino Monte Sol North Las Vegas, Nevada 89031 Gentlemen: This letter will set forth our agreement with respect to the conversion of certain Good Times Drive Thru restaurants into Steakout restaurants and related matters. For convenience we shall refer to Steakout, King of Steaks Restaurants, Inc. as "Steakout" and to Good Times Restaurants Inc. and its subsidiary, Good Times Drive Thru Inc., together as "Good Times." 1. Good Times shall lease and sublease to Steakout the following Good Times restaurants located in the Denver, Colorado metropolitan area (the "Initial Restaurants") pursuant to the terms and conditions of Leases and Subleases in the form attached hereto as Exhibit A: #105 - 41st & Wadsworth #118 - 22nd & Sheridan The consideration due from Steakout to Good Times for the lease and sublease of the Initial Restaurants shall be $50,000 payable in increments of $25,000 each due upon Steakout taking possession of an Initial Restaurant. Such taking of possession shall occur with respect to each of the Initial Restaurants at such time as the master lessor thereof has consented to the sublease and a building permit has been obtained therefor by Steakout, but in no event later than April 15, 1996. Steakout and Good Times acknowledge that Steakout has deposited in escrow with Cohen Brame & Smith Professional Corporation such $50,000 and Steakout and Good Times shall jointly instruct Cohen Brame & Smith to make such payments as set forth above. 2. Following the taking of possession of the Initial Restaurants, Steakout shall as rapidly as practicable cause the Initial Restaurants to be converted into Steakout restaurants involving a physical format substantially similar to the Steakout restaurants existing on the date of this letter agreement in Las Vegas, Nevada. The lease and sublease of the Initial Restaurants shall include all of the property thereof other than with respect to each of the Initial Restaurants (i) inventories, replenishable smallwares and cash banks, (ii) two cash registers, (iii) the center island make-up tables, (iv) shake machines, bun toasters and any other equipment not used in the normal operation of a Steakout restaurant and (v) Good Times signage that in Good Times' reasonable judgment cannot practicably be resurfaced and reused by Steakout. In connection with such conversion, Steakout shall also have the right to convert the existing Good Times passenger side drive-thru lanes into paved patios. 3. The subleases of the Initial Restaurants shall require Steakout, from and after its taking possession of each of the Initial Restaurants, to discharge in full and when due all obligations of Good Times under the master leases therefor. As additional consideration for the leases subleases, Steakout shall pay to Good Times six percent of the gross revenues of the Initial Restaurants. Such amounts shall be paid to Good Times on a monthly basis, and notwithstanding the foregoing, the payment each month with respect to each Initial Restaurant, commencing with the fifteenth day following its possession by Steakout, shall in no event be less than $2,500 or more than $3,300. 4. Good Times shall have the option to terminate the leases and subleases for the Initial Restaurants and to purchase from Steakout the assets thereof, which option may be exercised by Good Times by notice to Steakout given on or before 120 days after the opening of the second Initial Restaurant as a Steakout restaurant and which lease and sublease terminations and purchases shall be effective thirty days after such notice. The purchase price of the Initial Restaurants payable by Good Times to Steakout, due upon the effective date of such purchase, shall be $50,000 plus an amount equal to (i) all out-of-pocket expenses incurred by Steakout with third parties in converting the buildings and equipment of the Initial Restaurants from Good Times Drive Thru restaurants to Steakout restaurants and (ii) customary capitalized pre-opening expenses incurred by Steakout for the Initial Restaurants which expenses shall therefore exclude expenses incurred for Steakout employees. 5. The option of Good Times to purchase the Initial Restaurants shall not be transferable and if not exercised by Good Times, shall be exercisable only by Boyd E. Hoback ("Hoback"), the present President and Chief Executive Officer of Good Times, in view of Steakout's confidence in Hoback's operations capability. 6. Upon exercise of the above described option to purchase the Initial Restaurants, Good Times (or Hoback) shall become the exclusive Steakout area franchisee for Colorado and Boise, Idaho, including within such exclusive rights the right to subfranchise. Good Times (or Hoback) shall pay an initial fee with respect to each purchased Initial Restaurant of $20,000 due upon the effective date of such purchase. Upon such purchase Steakout and Good Times (or Hoback) shall enter into a development agreement containing the development schedule and providing for additional initial fees as set forth on Exhibit B hereto and a franchise agreement, which franchise agreement shall require the payment of weekly royalty fees as set forth on Exhibit B hereto, and which development and franchise agreements shall contain other customary terms and conditions approved by Steakout and Good Times (or Hoback), which approvals shall not be unreasonably withheld. If Steakout and Good Times (or Hoback) cannot agree on such other customary terms and conditions, they shall be determined by arbitration in Denver, Colorado. Such arbitration shall be accomplished by Good Times (or Hoback) and Steakout each designating a restauranteur which designees shall then jointly designate a third independent restauranteur and such third independent restauranteur, whose fees shall be paid equally by Steakout and Good Times (or Hoback), shall determine such other customary terms and conditions. 7. Prior to the exercise or the lapse of Good Times' (or Hoback's) purchase option set forth in paragraph 4 or, if later, until September 30, 1996, Good Times shall provide to Steakout leased restaurant personnel and accounting services for the Initial Restaurants. Such services shall not however include personnel utilized for special opening teams which personnel shall be provided and paid for by Steakout. The accounting services shall consist of monthly operations financial statements of the same nature as Good Times provides for its own restaurants. Steakout shall utilize such leased employees pursuant to employment practices approved by Good Times, which approval shall not be unreasonably withheld, and Steakout shall indemnify and hold Good Times harmless with respect to any claims arising out of the use of such leased employees. As compensation for such services Steakout shall (i) reimburse Good Times for its out-of-pocket costs for all such leased employees and (ii) pay Good Times $500 per month for each Initial Restaurant. If Good Times (or Hoback) has not exercised its option under paragraph 4 (or 5), Good Times shall thereafter at Steakout's request provide until September 30, 1996 complete management services for the Initial Restaurants and shall receive as additional compensation therefor two percent of the gross revenues of the Initial Restaurants during the period of such complete services. Steakout shall make such reimbursements and payments to Good Times on a weekly basis together with reimbursement of any other expenses incurred by Good Times on behalf of Steakout in connection with such services. To ensure the making of such reimbursements and payments, Steakout shall at all times provide to, and maintain with, Good Times a cash reserve fund equal to the estimate from time to time of Good Times of such reimbursements and payments to be due from Steakout for payroll and payroll taxes during each succeeding two week period. The foregoing complete management services provisions shall be embodied in a management services agreement as set forth in Exhibit C hereto. 8. Prior to the exercise or lapse of Good Times' (or Hoback's) option to purchase the Initial Restaurants but after the conversion thereof to Steakouts, Steakout shall have the option at any time upon thirty days notice to terminate the leases and subleases and the complete management services agreement and to transfer ownership of the Initial Restaurants to Good Times without any payment obligation therefor by Good Times. Thereafter, Good Times may elect to operate the Initial Restaurants as Steakout restaurants for one year without any initial franchise fee or weekly royalty fees after which weekly royalty fees shall be payable as set forth on Exhibit B. 9. Provided that (i) the aggregate gross revenues of the Initial Restaurants as Steakout restaurants have averaged $14,000 per week per Initial Restaurant, exclusive of revenues during the first one week of operation of each Initial Restaurant, (ii) the average gross revenues of each Initial Restaurant have been at least $10,000 exclusive of such first week, and (iii) Steakout has not exercised its option under paragraph 8, Steakout may elect to sublease the following two additional Good Times restaurants: #109 - Monaco & Evans #127 - 92nd & Wadsworth Notwithstanding the foregoing, if Good Times has not at the time of the exercise of such election completed the sale of its restaurant in Broomfield, Good Times may elect to substitute for restaurant #109 another Good Times restaurant in the Denver Metropolitan area which other restaurant shall be selected by Good Times as being of generally equivalent potential value as restaurant #109 and which selection shall be subject to the approval of Steakout, which approval shall not be unreasonably withheld. 10. The election of Steakout set forth in paragraph 9 shall be made or lapse thirty days after the opening of both of the Initial Restaurants as Steakout restaurants except that if the revenues of the Initial Restaurants have not at such time met the requirements set forth in paragraph 9, Steakout may extend the period of such election for up to an additional four weeks in order to endeavor to meet such requirements. Upon such election: (i) leases and subleases shall be entered into for such additional restaurants in the form attached hereto as Exhibit A; and (ii) Steakout shall pay Good Times $50,000. Such additional restaurants shall thereafter become Initial Restaurants for all purposes of this letter agreement except that (i) the option of Good Times (or Hoback) to terminate the leases and subleases and to purchase the assets of the Initial Restaurants under paragraph 4 shall be exercisable on or before the elapse of ninety days after the opening of the fourth Initial Restaurant as a Steakout restaurant and the $50,000 purchase price set forth in paragraph 4 shall become $100,000, and (ii) the option of Steakout to terminate the subleases under paragraph 8 shall not apply to any of the Initial Restaurants. Upon exercise of such option by Good Times (or Hoback) payment with respect to restaurants #105 and #118 shall be due thirty days thereafter and with respect to the other two Initial Restaurants shall be due ninety days thereafter. 11. Notwithstanding the provisions set forth above, if Steakout has elected to lease and sublease four Initial Restaurants and if Good Times has exercised its option to purchase the Initial Restaurants, Good Times may also, with the concurrence of Steakout, elect to postpone the effective date of its purchase of two of the Initial Restaurants designated by it for one year. Moreover, notwithstanding the exercise of Good Times' option to terminate the sublease and purchase the Initial Restaurants, Good Times shall not be obligated to purchase such designated Initial Restaurants if Steakout has concurred with the above described postponement and if in the period from the commencement of the subleases therefor up to the scheduled effective date of the purchase thereof the average weekly gross revenues of such Initial Restaurants are less than $14,000 per Initial Restaurant. During the period of such postponed purchase, Good Times shall provide for such two Initial Restaurants all of the services described in paragraph 7 and shall receive all of the compensation described in such paragraph. 12. In the event that neither Good Times (nor Hoback) exercises its option to purchase the Initial Restaurants, and Steakout does not exercise its option under paragraph 8 above, upon the lapse of such options, the subleases for the Initial Restaurants shall terminate and (i) Good Times shall assign the master leases for the Initial Restaurants to Steakout and (ii) Steakout shall reimburse Good Times for the amount of its net book value of the Initial Restaurants, exclusive of Initial Restaurant #105, as shown on the regular accounting records of Good Times as of the last day of the month preceding the lapse of the option of Good Times (and Hoback) after first subtracting from such reimbursement the $50,000 (or $100,000 under paragraph 10) paid by Steakout to Good Times under paragraph 1 above. The reimbursement by Steakout under subpart (ii) above shall be in the form of the promissory note of Steakout secured by the assets of the Initial Restaurants, which note shall accrue interest at the rate of seven percent per annum and with all interest and principal due on or before the elapse of ten years after the date of this letter agreement. Steakout shall make payments on such promissory note equal to six percent of the gross revenues of the Initial Restaurants, payable on or before the 15th day of each month with respect to revenues of the prior month. Notwithstanding the foregoing, in no event shall such payments be less than $30,000 or more than $40,000 with respect to each of the Initial Restaurants during each 12 month period of such promissory note. The form of such promissory note shall be as attached hereto as Exhibit D. Any default by Steakout under the leases for the Initial Restaurants assigned by Good Times to Steakout or under this letter agreement shall constitute a default under such promissory note. In the event that there are four Initial Restaurants, their purchase price shall be the net book value of Good Times therein, including in Initial Restaurant #105. In the event that there are two Initial Restaurants, with respect to Initial Restaurant #105, Steakout shall pay to Good Times six percent of its gross revenues for a period of five years after the termination of its sublease also payable on or before the 15th day of each month with respect to the revenues of the prior month. The obligation to make such payments shall also be secured by the assets of the Initial Restaurants. The net book value of the Initial Restaurants as of the date hereof is as shown on Exhibit E hereto. Following the assignment of the master leases for the Initial Restaurants from Good Times to Steakout and so long as Good Times remains obligated under any of such master leases, Steakout shall not assign, sublease or otherwise transfer its interest in the leases for which Good Times remains obligated without the prior written approval of Good Times, which approval shall not be unreasonably withheld. In determining the reasonableness of a withholding of approval thereof by Good Times, it shall be reasonable for Good Times to consider, among other factors, the net worth and operating experience of the proposed transferee from Steakout. 13. In the event that Steakout develops any additional Steakout restaurants in excess of the Initial Restaurants prior to the exercise or lapse of Good Times' (or Hoback's) purchase option, such additional restaurants shall be subject to such purchase options pursuant to paragraphs 4 and 5 above and to the management provisions of paragraphs 7 and 11. Such purchase options shall be exercisable on or before 120 days after the opening of all of such restaurants and payment therefor shall be due ninety days after exercise of such options. 14. To assist Steakout in the development of its operating systems and operating procedures, Good Times shall provide without charge to Steakout (except for reimbursement of any Good Times out-of-pocket expenses) the use of its franchise documents, training manuals, operations manuals and accounting and administrative systems. Good Times shall also make available to Steakout without charge Good Times personnel for consultation on such items to a reasonable extent which in Good Times' discretion does not interfere with the employment duties of such personnel to Good Times. Steakout shall maintain the confidentiality of such information and shall recognize the proprietary rights of Good Times thereto and the foregoing shall be embodied in such confidentiality and proprietary rights agreements as Good Times may reasonably request. Good Times shall also maintain the confidentiality of and recognize the proprietary rights of Steakout's systems. 15. Until the promissory note provided for in paragraph 12 has been paid in full and for so long as Good Times is contingently liable on the leases for the Initial Restaurants, or until Good Times (or Hoback) reacquires the Initial Restaurants, Steakout shall be the entity receiving all franchise fees and royalties with respect to all franchised Steakout restaurants wherever located and shall neither liquidate nor make any extraordinary distributions to its shareholders. 16. Whenever any payments are due Good Times from Steakout based upon gross revenues (i) there shall first be deducted from such revenues any sales and similar excise taxes payable; (ii) each payment shall be accompanied by a certification as its correctness from the chief financial officer or other executive officer of Steakout, and (iii) Good Times and its agents shall have right upon reasonable notice and at reasonable intervals to inspect the books and records of Steakout to verify the correctness of such payments. If any such payment is understated, Steakout shall reimburse Good Times for the cost of such inspection and such understatement shall be immediately payable together with interest thereon of 18 percent per annum. Any late payment shall also be subject to a late fee of $500. 17. Any dispute under this letter agreement, except as otherwise expressly set forth, shall be resolved by arbitration in Denver, Colorado pursuant to procedures the parties agree upon and in the absence of any such agreement, pursuant to the rules and procedures of the American Arbitration Association. If this letter correctly sets forth our agreement, please sign and return the attached copy hereof. Very truly yours, GOOD TIMES RESTAURANTS INC. By: /s/ Boyd E. Hoback, President President Accepted and agreed to this 1st day of April, 1996 STEAKOUT, KING OF STEAKS RESTAURANTS, INC. By: /s/ Gary Schwalb -----END PRIVACY-ENHANCED MESSAGE-----