Business Combinations

12 Months Ended

Sep. 27, 2016

Business Combinations [Abstract]

Business Combinations

2. Business Combinations

The Company believes the Bad Daddy Burger Bar brand has significant growth potential and can be expanded beyond its current regional footprint.  In order to acquire control over the Bad Daddy’s Burger Bar brand to take advantage of this growth potential, on April 28, 2015, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) to purchase from five sellers all of the membership interests in BDI, a North Carolina limited liability company.  The Company closed on the purchase of BDI on May 7, 2015, and BDI became a wholly-owned subsidiary of the Company.  BDI owns all of the member interests in four limited liability companies, each of which owns and operates a Bad Daddy’s Burger Bar restaurant in North Carolina.  In addition, BDI owns a portion of the member interests in three other limited liability companies, each of which also owns a Bad Daddy’s Burger Bar restaurant in North Carolina.  BDI also owns the intellectual property associated with the Bad Daddy’s Burger Bar concept and owns 52% of the member interests in BDFD, which has granted franchises for the ownership and operation of Bad Daddy’s Burger Bar restaurants in South Carolina and Tennessee. BDI has also granted a license for the operation of a Bad Daddy’s Burger Bar at the Charlotte airport.  As a result of the purchase of BDI, the Company has acquired all of the foregoing interests and assets.   Prior to the acquisition, the Company owned the remaining 48% of the member interests in BDFD and carried an Investment in Affiliates balance of $498,000.

The aggregate price paid by the Company for the purchase of BDI was $21,402,000, comprised of $18,988,000 payable in cash and a one-year secured promissory note bearing interest at 3.25% in the amount of $2,414,000.  The total price paid was subject to adjustments for the final calculation of the net working capital balance.  Pursuant to a Pledge Agreement (the “Pledge Agreement”), the promissory note is secured by a pledge of the ownership of the two entities which own two of the acquired restaurants. Upon the reduction of the principal of the promissory note by at least 50% the sellers are to select one of the entities for release from the pledge.  The Company acquired all of BDI’s ownership interests.

The Company incurred non-recurring costs of $648,000 for the fiscal year ended September 30, 2015 related to the BDI acquisition which are included in the condensed consolidated statements of operations.

In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), the total purchase consideration is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of May 7, 2015 (the acquisition date). The purchase price was allocated based on information available at the time and was adjusted after obtaining more information regarding, among other things, liabilities assumed and revisions of preliminary estimates.

The estimated fair values of the assets acquired and liabilities assumed for the acquisition approximated the following:

	Allocated Fair Value
Cash	$	1,376
Receivables		124
Prepaid expenses and other		49
Inventories		133
Deposits		52
Property and equipment		3,672
Trademarks (1)		3,900
Franchise agreements (1)		116
Non-compete agreements (1)		15
Goodwill (2)		14,970
Total assets purchased		24,407
Accounts payable and other accrued liabilities		(750	)
Unfavorable lease liability		(481	)
Non-controlling interests		(1,276	)
Total liabilities assumed		(2,507	)
Investment in BDFD balance		(498	)
Total purchase price	$	21,402
Cash	$	18,988
Notes payable		2,414
Total purchase price	$	21,402

⁽¹⁾ The value of the identifiable intangible assets were determined by an independent Corporate Finance and Business Valuation firm.

⁽²⁾ The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill.  The portion of the purchase price attributable to goodwill represents benefits expected as a result of the acquisition, including sales and unit growth opportunities.

Included in the consolidated statement of operations for the fiscal year ended September 30, 2015 are revenues of $7,639,000 and net income of $189,000 attributed to BDI and BDFD from the date of acquisition.

Estimates of acquired goodwill and identifiable intangible assets related to the acquisition are as follows:

	EstimatedFair Value		Weighted AverageEstimated Useful Life (yrs)
Trademarks and trade names	$	3,900	Indefinite
Franchise Agreements		116		3 – 9
Non-Compete Agreements		15		3
Goodwill, including assembled workforce		14,970	Indefinite

The table below presents the proforma revenue and net income for the fiscal year ended September 30, 2015, assuming the acquisition had occurred on October 1, 2014.  This proforma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition occurred on this date nor does it purport to predict the results of operations for future periods.

	Fiscal Year EndedSeptember 30
	2015
Revenues	$	54,416
Net income	$	619
Net income (loss) attributable to Good Times Restaurants, Inc.	$	159
Net income (loss) attributable to common shareholders	$	159
Basic and diluted income (loss) per share	$	.01