Fired Up Inc., the operator or franchisor of nearly 100 Johnny Carino’s Italian restaurants, has filed for Chapter 11 bankruptcy protection.
The Austin, Texas-based company had been attempting an “out of court” turnaround, closing 19 unprofitable restaurants in the past six months, but the decision to seek Chapter 11 protection would hopefully ensure and accelerate that effort, officials said.
In a declaration filed with the United States District Court, Fired Up chief executive and chairman Creed Ford III said the bankruptcy filing would let the company attempt to “tie up loose ends of the company’s self-imposed reorganization that did not appear capable of being tied up without litigation.”
According to the filing, Fired Up owes approximately $17.1 million in contractual secured debts and $13.8 million in unsecured debts, as well as nearly $2.5 million in property taxes. Of the $17.1 million owed in contractual secured debt, $13.4 million belongs to FRG Capital LLC, a company owned by Ford and his immediate family, which financed a transaction to redeem $16 million in preferred shares from investor Rosewood Capital in December 2010.
Ford, his wife and other members of their family own 74.8 percent of Fired Up Inc.
The rest of Fired Up’s secured debts include $1.9 million to GE Capital Corp., $1.2 million to Prosperity Bank and $600,000 to Independent Bank of Waco. Among the company’s largest unsecured debts are $2.8 million owed to AEI Fund Management with regard to two shortfall notes, $3.3 million owed to landlords contingent upon lease rejections, and $2.2 million owed to a former vendor, Ben E. Keith Co. of Ft. Worth, Texas.
In the fourth quarter of 2013, Fired Up began closing restaurants, cutting general and administrative expenses, and negotiating lease terminations or sub-leases with landlords of shuttered restaurants, as well as rolling out new marketing programs to grow sales and traffic.
“However, while most of the company’s landlords and other creditors continued in these ‘bad times’ with the collegial working relationship they had had with the company and me over decades, some did not,” Ford wrote in a court filing. “The actual timing of the filing on March 27, 2014, was influenced by two lawsuits — one by a former vendor which was aggressively seeking unreasonable repayment terms on an outstanding amount owed when that vendor and debtor ceased doing business, and the other by a former landlord.”
Fired Up indicated in court documents that its sales and profitability had been trending down the past few years. For the fiscal year ended June 27, 2012, the company reported net income of $614,000, on systemwide revenue of $125.7 million and guest counts of 8.6 million. The company swung to a net loss of $5.9 million the next fiscal year, as guest counts dipped to 8.5 million and revenue fell to $120.8 million.
Annualized gross sales for company-owned stores were projected to be approximately $103 million for the 2014 fiscal year, Fired Up disclosed. The company added that it had reduced general and administrative expenses by $2.5 million in 2014, compared with 2013.
Following the closure of the 19 underperforming stores, the company expects an increase in profit of at least 6 percent at each of the continuing stores. Ford indicated in his filing that the increase in cash flow at remaining stores made him confident Fired Up would become profitable and create “a plan of reorganization” to repay its existing obligations and those resulting from the termination of leases.
“I hope that, with the burden of aggressive creditors continuing unrelated collection efforts being removed, I can focus Fired Up on further efforts to better market itself, increase revenues and continue to cut costs,” Ford wrote.
Fired Up has 46 company-owned and 51 franchised Johnny Carino’s Italian restaurants in 21 states and four Middle Eastern countries.