UNITED STATES | ||||||||
SECURITIES AND EXCHANGE COMMISSION | ||||||||
WASHINGTON, D.C. 20549 | ||||||||
FORM 10-Q | ||||||||
(Mark One) | ||||||||
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE | ||||||||
ACT OF 1934 | ||||||||
For the quarterly period ended June | ||||||||
OR | ||||||||
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | ||||||||
EXCHANGE ACT OF 1934 | ||||||||
Commission File Number: | ||||||||
(Exact Name of Registrant as Specified in Its Charter) |
NEVADA | 84-1133368 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
141 UNION BLVD, SUITE 400, LAKEWOOD, CO 80228 |
(Address of Principal Executive Offices, Including Zip Code) |
(303) 384-1400 |
(Registrant's Telephone Number, Including Area Code) |
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 |
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 x | No o | |||||||
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). | ||
Yes x | No o |
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 | o | Accelerated filer | o | |||||
Non-accelerated filer | x | Smaller reporting company | x | |||||
Emerging growth company | o | |||||||
If an emerging growth company, indicated 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.o | ||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ||||||||
Yes o | No x | |||||||
|
As of August 14, 2020, there were 12,600,507 shares of the Registrant's common stock, par value $0.001 per share, issued and outstanding.
Form 10-Q
Quarter Ended June 25, 201930, 2020
2 |
PART I. - FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
June 25, 2019 | September 25, 2018 | June 30, 2020 | September 24, 2020 | |||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 2,619 | $ | 3,477 | $ | 12,665 | $ | 2,745 | ||||||||
Receivables, net of allowance for doubtful accounts of $0 | 353 | 1,735 | 704 | 810 | ||||||||||||
Prepaid expenses and other | 451 | 151 | 1,097 | 220 | ||||||||||||
Inventories | 1,124 | 1,004 | 1,087 | 1,128 | ||||||||||||
Notes receivable | 13 | 14 | 13 | 12 | ||||||||||||
Total current assets | 4,560 | 6,381 | 15,566 | 4,915 | ||||||||||||
PROPERTY AND EQUIPMENT: | ||||||||||||||||
Land and building | 4,787 | 5,002 | 4,704 | 4,787 | ||||||||||||
Leasehold improvements | 30,740 | 27,844 | 33,044 | 32,393 | ||||||||||||
Fixtures and equipment | 26,316 | 24,948 | 28,419 | 27,597 | ||||||||||||
Total property and equipment | 61,843 | 57,794 | 66,167 | 64,777 | ||||||||||||
Less accumulated depreciation and amortization | (25,177 | ) | (22,549 | ) | (37,607 | ) | (29,100 | ) | ||||||||
Total net property and equipment | 36,666 | 35,245 | 28,560 | 35,677 | ||||||||||||
OTHER ASSETS: | ||||||||||||||||
Operating lease right-of-use assets, net | 50,864 | - | ||||||||||||||
Notes receivable, net of current portion | 16 | 32 | 3 | 13 | ||||||||||||
Deposits and other assets | 204 | 207 | 221 | 199 | ||||||||||||
Trademarks | 3,900 | 3,900 | 3,900 | 3,900 | ||||||||||||
Other intangibles, net | 60 | 35 | 26 | 51 | ||||||||||||
Goodwill | 15,150 | 15,150 | 5,150 | 15,150 | ||||||||||||
Total other assets | 19,330 | 19,324 | 60,164 | 19,313 | ||||||||||||
TOTAL ASSETS: | $ | 60,556 | $ | 60,950 | $ | 104,290 | $ | 59,905 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Current maturities of long-term debt and capital lease obligations | $ | - | $ | 17 | ||||||||||||
Current maturities of long-term debt | $ | 4,794 | $ | - | ||||||||||||
Accounts payable | 4,253 | 3,774 | 3,016 | 3,774 | ||||||||||||
Deferred income | 72 | 92 | 79 | 79 | ||||||||||||
Operating lease liabilities, current | 4,629 | - | ||||||||||||||
Other accrued liabilities | 3,476 | 4,452 | 5,786 | 5,375 | ||||||||||||
Total current liabilities | 7,801 | 8,335 | 18,304 | 9,228 | ||||||||||||
LONG-TERM LIABILITIES: | ||||||||||||||||
Maturities of long-term debt and capital lease obligations due after one year | 11,150 | 7,472 | ||||||||||||||
Maturities of long-term debt due after one year | 16,751 | 12,850 | ||||||||||||||
Operating lease liabilities, net of current portion | 55,462 | - | ||||||||||||||
Deferred and other liabilities | 8,290 | 7,922 | 263 | 8,907 | ||||||||||||
Total long-term liabilities | 19,440 | 15,394 | 72,476 | 21,757 | ||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||||||
Good Times Restaurants Inc. stockholders’ equity: | ||||||||||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding as of 06/25/19 and 09/25/18 | - | - | ||||||||||||||
Common stock, $.001 par value; 50,000,000 shares authorized, 12,522,778 and 12,481,162 shares issued and outstanding as of 06/25/19 and 09/25/18, respectively | 13 | 12 | ||||||||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding as of 06/30/20 and 9/24/19 | - | - | ||||||||||||||
Common stock, $.001 par value; 50,000,000 shares authorized, 12,595,654 and 12,541,082 shares issued and outstanding as of 06/30/20 and 09/24/19, respectively | 13 | 13 | ||||||||||||||
Capital contributed in excess of par value | 57,548 | 59,385 | 58,159 | 57,936 | ||||||||||||
Treasury stock-at cost-shares 43,110 and 0, respectively | (75 | ) | - | |||||||||||||
Accumulated deficit | (26,375 | ) | (25,414 | ) | (45,989 | ) | (30,551 | ) | ||||||||
Total Good Times Restaurants Inc. stockholders' equity | 31,186 | 33,983 | 12,108 | 27,398 | ||||||||||||
Non-controlling interests | 2,129 | 3,238 | 1,402 | 1,522 | ||||||||||||
Total stockholders’ equity | 33,315 | 37,221 | 13,510 | 28,920 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 60,556 | $ | 60,950 | $ | 104,290 | $ | 59,905 |
See accompanying notes to condensed consolidated financial statements (unaudited)
3 |
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except share and per share data)
Quarter Ended | Year-to-Date | Quarter Ended | Year-to-Date | |||||||||||||||||||||||||||||
June 25, 2019 | June 26, 2018 | June 25, 2019 | June 26, 2018 | June 30, 2020 (13 Weeks) | June 25, 2019 (13 Weeks) | June 30, 2020 (40 Weeks) | June 25, 2019 (39 Weeks) | |||||||||||||||||||||||||
NET REVENUES: | ||||||||||||||||||||||||||||||||
Restaurant sales | $ | 29,180 | $ | 25,990 | $ | 81,281 | $ | 71,929 | $ | 24,190 | $ | 29,180 | $ | 80,781 | $ | 81,281 | ||||||||||||||||
Franchise revenues | 277 | 273 | 718 | 778 | 167 | 270 | 572 | 701 | ||||||||||||||||||||||||
Total net revenues | 29,457 | 26,263 | 81,999 | 72,707 | 24,357 | 29,450 | 81,353 | 81,982 | ||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||
RESTAURANT OPERATING COSTS: | ||||||||||||||||||||||||||||||||
Food and packaging costs | 8,529 | 7,833 | 23,955 | 22,154 | 6,724 | 8,529 | 23,376 | 23,955 | ||||||||||||||||||||||||
Payroll and other employee benefit costs | 10,677 | 9,155 | 30,458 | 26,076 | 7,389 | 10,677 | 29,082 | 30,458 | ||||||||||||||||||||||||
Restaurant occupancy costs | 2,091 | 1,850 | 6,221 | 5,278 | 2,089 | 2,091 | 6,739 | 6,221 | ||||||||||||||||||||||||
Other restaurant operating costs | 2,989 | 2,373 | 8,401 | 6,626 | 3,164 | 3,070 | 9,673 | 8,708 | ||||||||||||||||||||||||
Preopening costs | 129 | 610 | 949 | 1,683 | 31 | 129 | 992 | 949 | ||||||||||||||||||||||||
Depreciation and amortization | 1,104 | 937 | 3,227 | 2,665 | 983 | 1,104 | 3,175 | 3,227 | ||||||||||||||||||||||||
Total restaurant operating costs | 25,519 | 22,758 | 73,211 | 64,482 | 20,380 | 25,600 | 73,037 | 73,518 | ||||||||||||||||||||||||
General and administrative costs | 2,144 | 2,069 | 6,398 | 5,884 | 1,689 | 2,063 | 5,538 | 6,091 | ||||||||||||||||||||||||
Advertising costs | 666 | 653 | 1,841 | 1,850 | 515 | 659 | 1,571 | 1,824 | ||||||||||||||||||||||||
Franchise costs | 8 | 11 | 31 | 32 | 6 | 8 | 14 | 31 | ||||||||||||||||||||||||
Asset impairment costs | - | - | - | 72 | ||||||||||||||||||||||||||||
Loss (gain) on restaurant asset sale | 44 | (9 | ) | 5 | (26 | ) | ||||||||||||||||||||||||||
Impairment of goodwill | - | - | 10,000 | - | ||||||||||||||||||||||||||||
Impairment of long-lived assets | 932 | - | 5,291 | - | ||||||||||||||||||||||||||||
Gain (loss) on restaurant asset sale | (8 | ) | 44 | (36 | ) | 5 | ||||||||||||||||||||||||||
INCOME (LOSS) FROM OPERATIONS: | 1,076 | 781 | 513 | 413 | ||||||||||||||||||||||||||||
INCOME (LOSS) FROM OPERATIONS | 843 | 1,076 | (14,062 | ) | 513 | |||||||||||||||||||||||||||
Other Expenses: | ||||||||||||||||||||||||||||||||
Interest expense, net | (202 | ) | (96 | ) | (561 | ) | (270 | ) | (202 | ) | (202 | ) | (638 | ) | (561 | ) | ||||||||||||||||
Other expense | (1 | ) | - | (1 | ) | - | ||||||||||||||||||||||||||
Other income | - | (1 | ) | - | (1 | ) | ||||||||||||||||||||||||||
Total other expenses, net | (203 | ) | (96 | ) | (562 | ) | (270 | ) | (202 | ) | (203 | ) | (638 | ) | (562 | ) | ||||||||||||||||
NET INCOME (LOSS): | $ | 873 | $ | 685 | $ | (49 | ) | $ | 143 | |||||||||||||||||||||||
NET INCOME (LOSS) | $ | 641 | $ | 873 | $ | (14,700 | ) | $ | (49 | ) | ||||||||||||||||||||||
Income attributable to non-controlling interests | (333 | ) | (381 | ) | (912 | ) | (853 | ) | (352 | ) | (333 | ) | (738 | ) | (912 | ) | ||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 540 | $ | 304 | $ | (961 | ) | $ | (710 | ) | $ | 289 | $ | 540 | $ | (15,438 | ) | $ | (961 | ) | ||||||||||||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||||||||||||||||||||||||||
BASIC AND DILUTED INCOME (LOSS) PER SHARE: | ||||||||||||||||||||||||||||||||
Net income (loss) attributable to Common Shareholders | $ | .04 | $ | .02 | $ | (.08 | ) | $ | (.06 | ) | $ | .02 | $ | .04 | $ | (1.23 | ) | $ | (.08 | ) | ||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||||||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||||||||||||||||||
Basic | 12,522,778 | 12,468,326 | 12,516,822 | 12,460,467 | 12,591,079 | 12,522,778 | 12,593,137 | 12,516,822 | ||||||||||||||||||||||||
Diluted | 12,723,323 | 12,665,172 | 12,516,822 | 12,460,467 | 12,696,028 | 12,723,323 | 12,593,137 | 12,516,822 |
See accompanying notes to condensed consolidated financial statements (unaudited)
4 |
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Unaudited)
Year-to-Date June 30, 2020
(In thousands, except share and per share data)
Treasury Stock, at cost | Common Stock | |||||||||||||||||||||||||||||||
Shares | Amount | Issued Shares | Par Value | Capital Contributed in Excess of Par Value | Non- Controlling Interest In Partnerships | Accumulated Deficit | Total | |||||||||||||||||||||||||
BALANCES, September 24, 2019 | - | $ | - | 12,541,082 | $ | 13 | $ | 57,936 | $ | 1,522 | $ | (30,551 | ) | $ | 28,920 | |||||||||||||||||
Stock-based compensation cost | - | - | - | - | 74 | - | - | 74 | ||||||||||||||||||||||||
Restricted stock unit vesting | - | - | 76,643 | - | - | - | - | - | ||||||||||||||||||||||||
Stock option exercise | - | - | 2,413 | - | - | - | - | - | ||||||||||||||||||||||||
Non-controlling interests: | ||||||||||||||||||||||||||||||||
Treasury shares purchased | 43,110 | (75 | ) | (43,110 | ) | - | - | - | - | (75 | ) | |||||||||||||||||||||
Income | - | - | - | - | - | 212 | - | 212 | ||||||||||||||||||||||||
Contributions | - | - | - | - | - | 22 | - | 22 | ||||||||||||||||||||||||
Distributions | - | - | - | - | - | (291 | ) | - | (291 | ) | ||||||||||||||||||||||
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss | - | - | - | - | - | - | (811 | ) | (811 | ) | ||||||||||||||||||||||
BALANCES, December 31, 2019 | 43,110 | (75 | ) | 12,577,028 | 13 | 58,010 | 1,465 | (31,362 | ) | 28,051 |
Stock-based compensation cost | - | - | - | - | 75 | - | - | 75 | ||||||||||||||||||||||||
Restricted stock unit vesting | - | - | 14,000 | - | - | - | - | - | ||||||||||||||||||||||||
Non-controlling interests: | ||||||||||||||||||||||||||||||||
Income | - | - | - | - | - | 174 | - | 174 | ||||||||||||||||||||||||
Distributions | - | - | - | - | - | (95 | ) | - | (95 | ) | ||||||||||||||||||||||
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss | - | - | - | - | - | - | (14,916 | ) | (14,916 | ) | ||||||||||||||||||||||
BALANCES, March 31, 2020 | 43,110 | (75 | ) | 12,591,028 | $ | 13 | $ | 58,085 | $ | 1,544 | $ | (46,278 | ) | $ | 13,289 | |||||||||||||||||
Stock-based compensation cost | - | - | - | - | 74 | - | - | 74 | ||||||||||||||||||||||||
Restricted stock unit vesting | - | - | 4,626 | - | - | - | - | - | ||||||||||||||||||||||||
Non-controlling interests: | ||||||||||||||||||||||||||||||||
Income | - | - | - | - | - | 352 | - | 352 | ||||||||||||||||||||||||
Distributions | - | - | - | - | - | (494 | ) | - | (494 | ) | ||||||||||||||||||||||
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss | - | - | - | - | - | - | 289 | 289 | ||||||||||||||||||||||||
BALANCES, June 30, 2020 | 43,110 | (75 | ) | 12,595,654 | $ | 13 | $ | 58,159 | $ | 1,402 | $ | (45,989 | ) | $ | 13,510 |
See accompanying notes to consolidated financial statements (unaudited)
5 |
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Unaudited)
Year-to-Date June 25, 2019
(In thousands, except share and per share data)
Preferred Stock | Common Stock | |||||||||||||||||||||||||||||
Issued Shares | Par Value | Issued Shares | Par Value | Capital Contributed in Excess of Par Value | Non- Controlling Interest In Partnerships | Accumulated Deficit | Total | |||||||||||||||||||||||
BALANCES, September 26, 2018 | - | $ | - | 12,481,162 | $ | 12 | $ | 59,385 | $ | 3,238 | $ | (25,414 | ) | $37,221 | ||||||||||||||||
Stock-based compensation cost | 112 | 112 | ||||||||||||||||||||||||||||
Restricted stock unit vesting | 40,949 | 1 | 1 | |||||||||||||||||||||||||||
Stock option exercise | 667 | 3 | 3 | |||||||||||||||||||||||||||
Income attributable to non-controlling interests | 309 | 309 | ||||||||||||||||||||||||||||
Distributions to unrelated limited partners | (478 | ) | (478) | |||||||||||||||||||||||||||
Net loss attributable to Good Times Restaurants Inc and comprehensive loss | 0 | 0 | 0 | 0 | 0 | 0 | (1,051 | ) | (1,051) | |||||||||||||||||||||
BALANCES, December 25, 2018 | - | $ | - | 12,522,778 | $ | 13 | $ | 59,500 | $ | 3,069 | $ | (26,465 | ) | $36,117 | ||||||||||||||||
Stock-based compensation cost | 109 | 109 | ||||||||||||||||||||||||||||
Income attributable to non-controlling interests | 270 | 270 | ||||||||||||||||||||||||||||
Distributions to unrelated limited partners | (408 | ) | (408) | |||||||||||||||||||||||||||
Purchase of non-controlling interest | (2,171 | ) | (788 | ) | (2,959) | |||||||||||||||||||||||||
Net loss attributable to Good Times Restaurants Inc and comprehensive loss | 0 | 0 | 0 | 0 | 0 | 0 | (450 | ) | (450) | |||||||||||||||||||||
BALANCES, March 26, 2019 | - | $ | - | 12,522,778 | $ | 13 | $ | 57,438 | $ | 2,143 | $ | (26,915 | ) | $32,679 | ||||||||||||||||
Stock-based compensation cost | 110 | 110 | ||||||||||||||||||||||||||||
Income attributable to non-controlling interests | 333 | 333 | ||||||||||||||||||||||||||||
Distributions to unrelated limited partners | (367 | ) | (367) | |||||||||||||||||||||||||||
Contributions from unrelated limited partners | 20 | 20 | ||||||||||||||||||||||||||||
Net income attributable to Good Times Restaurants Inc and comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 540 | 540 | ||||||||||||||||||||||
BALANCES, June 25, 2019 | - | $ | - | 12,522,778 | $ | 13 | $ | 57,548 | $ | 2,129 | $ | (26,375 | ) | $33,315 |
See accompanying notes to condensed consolidated financial statements (unaudited)
Good Times Restaurants Inc. and SubsidiariesConsolidated Statements of Stockholders’ Equity (Unaudited)Year-to-Date June 26, 2018(In thousands, except share and per share data)
Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
Issued Shares | Par Value | Issued Shares | Par Value | Capital Contributed in Excess of Par Value | Non- Controlling Interest In Partnerships | Accumulated Deficit | Total | |||||||||||||||||||||||||
BALANCES, September 27, 2017 | - | $ | - | 12,427,280 | $ | 12 | $ | 58,939 | $ | 2,713 | $ | (24,380 | ) | $ | 37,284 | |||||||||||||||||
Stock-based compensation cost | 118 | 118 | ||||||||||||||||||||||||||||||
Restricted stock unit vesting | 41,046 | - | ||||||||||||||||||||||||||||||
Income attributable to non-controlling interests | 173 | 173 | ||||||||||||||||||||||||||||||
Distributions to unrelated limited partners | (256 | ) | (256 | ) | ||||||||||||||||||||||||||||
Net loss attributable to Good Times Restaurants Inc and comprehensive loss | 0 | 0 | 0 | 0 | 0 | 0 | (583 | ) | (583 | ) | ||||||||||||||||||||||
BALANCES, December 26, 2017 | - | $ | - | 12,468,326 | $ | 12 | $ | 59,057 | $ | 2,630 | $ | (24,963 | ) | $ | 36,736 | |||||||||||||||||
Stock-based compensation cost | 97 | 97 | ||||||||||||||||||||||||||||||
Income attributable to non-controlling interests | 299 | 299 | ||||||||||||||||||||||||||||||
Distributions to unrelated limited partners | (242 | ) | (242 | ) | ||||||||||||||||||||||||||||
Contributions from unrelated limited partners | 17 | 17 | ||||||||||||||||||||||||||||||
Net loss attributable to Good Times Restaurants Inc and comprehensive loss | 0 | 0 | 0 | 0 | 0 | 0 | (431 | ) | (431 | ) | ||||||||||||||||||||||
BALANCES, March 27, 2018 | - | $ | - | 12,468,326 | $ | 12 | $ | 59,154 | $ | 2,704 | $ | (25,394 | ) | $ | 36,476 | |||||||||||||||||
Stock-based compensation cost | 88 | 88 | ||||||||||||||||||||||||||||||
Income attributable to non-controlling interests | 381 | 381 | ||||||||||||||||||||||||||||||
Distributions to unrelated limited partners | (492 | ) | (492 | ) | ||||||||||||||||||||||||||||
Contributions from unrelated limited partners | 561 | 561 | ||||||||||||||||||||||||||||||
Net income attributable to Good Times Restaurants Inc and comprehensive loss | 0 | 0 | 0 | 0 | 0 | 0 | 304 | 304 | ||||||||||||||||||||||||
BALANCES, June 26, 2018 | - | $ | - | 12,468,326 | $ | 12 | $ | 59,242 | $ | 3,154 | $ | (25,090 | ) | $ | 37,318 |
See accompanying notes to condensed consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Year-to-Date | ||||||||
June 25, 2019 | June 26, 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (49 | ) | $ | 143 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 3,417 | 2,849 | ||||||
Accretion of deferred rent | 429 | 414 | ||||||
Amortization of lease incentive obligation | (374 | ) | (313 | ) | ||||
Asset impairment costs | - | 72 | ||||||
Stock-based compensation expense | 331 | 303 | ||||||
Recognition of deferred gain on sale of restaurant building | (27 | ) | (26 | ) | ||||
Loss on disposal of restaurant assets | 58 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Change in: | ||||||||
Receivables and other | 1,381 | (128 | ) | |||||
Inventories | (120 | ) | (59 | ) | ||||
Deposits and other | (356 | ) | (59 | ) | ||||
Change in: | ||||||||
Accounts payable | 367 | 194 | ||||||
Deferred liabilities | 368 | 1,258 | ||||||
Accrued and other liabilities | (1,023 | ) | (21 | ) | ||||
Net cash provided by operating activities | 4,402 | 4,627 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments for the purchase of property and equipment | (4,716 | ) | (6,560 | ) | ||||
Payments for the purchase of non-controlling interests | (3,009 | ) | - | |||||
Proceeds from sale leaseback transaction | - | 1,397 | ||||||
Proceeds from sale of fixed assets | 8 | - | ||||||
Payments received from franchisees and others | 17 | 10 | ||||||
Net cash used in investing activities | (7,700 | ) | (5,153 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings on notes payable and long-term debt | 6,150 | 1,400 | ||||||
Principal payments on notes payable and long-term debt | (2,480 | ) | (1,613 | ) | ||||
Proceeds from stock option exercise | 3 | - | ||||||
Net distributions paid to non-controlling interests | (1,233 | ) | (412 | ) | ||||
Net cash provided by (used in) financing activities | 2,440 | (625 | ) | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (858 | ) | (1,151 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning of period | 3,477 | 4,337 | ||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 2,619 | $ | 3,186 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 496 | $ | 276 | ||||
Change in accounts payable attributable to the purchase of property and equipment | $ | 112 | $ | 942 |
Common Stock | ||||||||||||||||||||||||
Issued Shares | Par Value | Capital Contributed in Excess of Par Value | Non- Controlling Interest In Partnerships | Accumulated Deficit | Total | |||||||||||||||||||
BALANCES, September 26, 2018 | 12,481,162 | $ | 12 | $ | 59,385 | $ | 3,238 | $ | (25,414 | ) | $ | 37,221 | ||||||||||||
Stock-based compensation cost | - | - | 112 | - | - | 112 | ||||||||||||||||||
Restricted stock unit vesting | 40,949 | 1 | - | - | 1 | |||||||||||||||||||
Stock option exercise | 667 | - | 3 | - | - | 3 | ||||||||||||||||||
Income attributable to non-controlling interests | - | - | - | 309 | - | 309 | ||||||||||||||||||
Distributions to unrelated limited partners | - | - | - | (478 | ) | - | (478 | ) | ||||||||||||||||
Net loss attributable to Good Times Restaurants Inc and comprehensive loss | - | - | - | - | (1,051 | ) | (1,051 | ) | ||||||||||||||||
BALANCES, December 25, 2018 | 12,522,778 | $ | 13 | $ | 59,500 | $ | 3,069 | $ | (26,465 | ) | $ | 36,117 | ||||||||||||
Stock-based compensation cost | - | - | 109 | - | - | 109 | ||||||||||||||||||
Income attributable to non-controlling interests | - | - | - | 270 | - | 270 | ||||||||||||||||||
Distributions to unrelated limited partners | - | - | - | (408 | ) | - | (408 | ) | ||||||||||||||||
Purchase of non-controlling interest | - | - | (2,171 | ) | (788 | ) | - | (2,959 | ) | |||||||||||||||
Net loss attributable to Good Times Restaurants Inc and comprehensive loss | - | - | - | - | (450 | ) | (450 | ) | ||||||||||||||||
BALANCES, March 26, 2019 | 12,522,778 | $ | 13 | $ | 57,438 | $ | 2,143 | $ | (26,915 | ) | $ | 32,679 | ||||||||||||
Stock-based compensation cost | - | - | 110 | - | - | 110 | ||||||||||||||||||
Income attributable to non-controlling interests | - | - | - | 333 | - | 333 | ||||||||||||||||||
Distributions to unrelated limited partners | - | - | - | (367 | ) | - | (367 | ) | ||||||||||||||||
Contributions from unrelated limited partners | - | - | - | 20 | - | 20 | ||||||||||||||||||
Net loss attributable to Good Times Restaurants Inc and comprehensive loss | - | - | - | - | 540 | 540 | ||||||||||||||||||
BALANCES, June 25, 2019 | 12,522,778 | $ | 13 | $ | 57,548 | $ | 2,129 | $ | (26,375 | ) | $ | 33,315 |
See accompanying notes to condensed consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Fiscal Year-to-Date | ||||||||
June 30, 2020 (40 Weeks) | June 25, 2019 (39 Weeks) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (14,700 | ) | $ | (49 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 3,313 | 3,417 | ||||||
Accretion of deferred rent | - | 429 | ||||||
Amortization of lease incentive obligation | - | (374 | ) | |||||
Amortization of operating lease assets | 3,100 | - | ||||||
Impairment of goodwill | 10,000 | - | ||||||
Impairment of long-lived assets | 5,291 | - | ||||||
Stock-based compensation expense | 223 | 331 | ||||||
Recognition of deferred gain on sale of restaurant building | (28 | ) | (27 | ) | ||||
Loss on disposal of restaurant assets | - | 58 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables and other | 443 | 1,381 | ||||||
Inventories | 41 | (120 | ) | |||||
Deposits and other | (986 | ) | (356 | ) | ||||
Accounts payable | 47 | 367 | ||||||
Deferred liabilities | - | 368 | ||||||
Operating lease liabilities | (2,730 | ) | - | |||||
Accrued and other liabilities | 374 | (1,023 | ) | |||||
Net cash provided by operating activities | 4,388 | 4,402 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments for the purchase of property and equipment | (2,294 | ) | (4,716 | ) | ||||
Payments for the purchase of treasury stock | (75 | ) | - | |||||
Payments for the purchase of non-controlling interests | - | (3,009 | ) | |||||
Proceeds from the sale of fixed assets | 55 | 8 | ||||||
Payments received from franchisees and others | 9 | 17 | ||||||
Net cash used in investing activities | (2,305 | ) | (7,700 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings on notes payable and long-term debt | 16,945 | 6,150 | ||||||
Principal payments on notes payable and long-term debt | (8,250 | ) | (2,480 | ) | ||||
Proceeds from stock option exercise | - | 3 | ||||||
Contributions from non-controlling interests | 22 | 20 | ||||||
Distributions to non-controlling interests | (880 | ) | (1,253 | ) | ||||
Net cash provided by financing activities | 7,837 | 2,440 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 9,920 | (858 | ) | |||||
CASH AND CASH EQUIVALENTS, beginning of period | 2,745 | 3,477 | ||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 12,665 | $ | 2,619 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 625 | $ | 496 | ||||
Change in accounts payable attributable to the purchase of property and equipment | $ | (805 | ) | $ | 112 |
See accompanying notes to condensed consolidated financial statements (Unaudited)
7 |
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular dollar amounts in thousands, except share and per share data)
Note 1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements include the accounts of Good Times Restaurants Inc. and its wholly-owned subsidiaries, Bad Daddy’s International, LLC (“BDI”), BD of Colorado, LLC (“BD of Colo”BDC”), Bad Daddy’s Franchise Development, LLC (“BDFD”), and Good Times Drive Thru, Inc. (“Drive Thru”), (together referred to as the “Company”, “we” or “us”). All significant intercompany balances and transactions have been eliminated in consolidation.
BD of ColoBDC was formed by Good Times Restaurants Inc. in 2013 to develop Bad Daddy’s Burger Bar restaurants in the state of Colorado. Subsequently, BDI and BDFD were acquired by Good Times Restaurants Inc. on May 7, 2015. Combined, these entities compose our Bad Daddy’s operating segment, which as of June 25, 2019,30, 2020, operates twenty-eightthirty-two company-owned and five joint venturejoint-venture full-service upscalesmall-box casual dining restaurants under the name Bad Daddy’s Burger Bar, primarily located in Colorado and in the Southeast region of the United States, franchises one restaurant in South Carolina, and licenses the Bad Daddy’s brand for use at an airport Bad Daddy’s restaurant under third-party operations and ownership.
Drive Thru commenced operations in 1986 and as of June 25, 2019,30, 2020, operates nineteeneighteen Company-owned and seven joint venturejoint-venture drive-thru fast food hamburger restaurants in Colorado under the name Good Times Burgers & Frozen Custard.Custard, all of which are located in Colorado. In addition, Drive Thru has eight franchisee-owned restaurants, with six operating in Colorado and two in Wyoming.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (“GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position of the Company as of June 25, 201930, 2020 and the results of its operations and its cash flows for the three fiscal quarters ended June 25, 201930, 2020 and June 26, 2018.25, 2019. Operating results for the three fiscal quarters ended June 25, 201930, 2020 are not necessarily indicative of the results that may be expected for the year ending September 24, 2019.29, 2020. The condensed consolidated balance sheet as of September 25, 201824, 2019 is derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles. As a result, these condensed consolidated financial statements should be read in conjunction with the Company's Form 10-K for the fiscal year ended September 25, 2018.24, 2019.
Fiscal Year – 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 consist of 13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks. NeitherThe first quarter of fiscal 2020 ended on December 31, 2019 and consisted of 14 weeks. The first quarter of fiscal 2019 ended on December 25, 2018 orand consisted of 13 weeks. The year-to-date periods ended June 30, 2020 and June 25, 2019 had a quarter with 14 weeks.consisted of 40 weeks and 39 weeks, respectively.
Advertising Costs – We utilize Advertising Funds to administer certain advertising programs for both the Bad Daddy’s and Good Times brands that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to the fund. As theThe contributions to these funds are designated and segregated for advertising. We consolidate the Advertising Funds into our financial statements whereby contributions from franchisees, when received, are recorded and included as a component of franchise revenues. As we intend to utilize all of the advertising contributions towards advertising expenditures, we recognize costs equal to franchisee contributions to the advertising funds on a quarterly basis. Contributions to the Advertising Funds from our franchisees were $240,000$176,000 and $263,000$223,000 for the first three quarters of 20192020 and 2018,2019, respectively.
Reclassification – Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on the net loss.
COVID-19
The global crisis resulting from the spread of COVID-19 had a substantial impact on our restaurant operations for the 13-week and 40-week periods ended June 30, 2020. During portions of the month of March 2020 through late May 2020, all of the Company’s Bad Daddy’s Burger Bar restaurants were open only for delivery and carry-out service, with dining rooms closed by government orders. Beginning in late May 2020, we began to re-open dining rooms at Bad Daddy’s as local regulations allowed. By early June, we had re-opened all the dining rooms at Bad Daddy’s, which currently remain open. Although our dining rooms are open, all operate at some reduction of capacity, whether driven by explicit capacity reductions under government orders, or due to social distancing protocols that are either mandated by the same government orders, or which we abide by as under our own internal protocols designed to maintain a safe foodservice environment, both for our employees and for our customers.
8 |
Our operating results substantially depend upon our ability to drive traffic to our restaurants, and for our Bad Daddy’s Burger Bar restaurants, to serve guests in our dining rooms. We cannot currently estimate the duration of the impact of the COVID-19 pandemic on our business; neither are we able to predict how the pandemic will evolve nor how various government entities will respond to its evolution. Should governments choose to reverse course and re-close dining rooms, 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.
Additionally, in connection with spread of COVID-19, there have been disruptions in various food supply chains in the United States. Our operating results substantially depend upon our ability to obtain sufficient quantities of products such as beef, bacon, and other products used in the production of items served and sold to our guests. Ongoing impacts of the COVID-19 pandemic could result in product shortages and in-turn could require us to serve a limited menu, restrict number of items purchased per guest, or close some or all of our restaurants for an indeterminate period of time. Ongoing material adverse impacts from the COVID-19 pandemic could result in reduced revenue and cash flow and could affect our assessments of impairment of intangible assets, long-lived assets, or goodwill.
We took extraordinary actions to increase our liquidity in response to COVID-19, including temporarily reducing employee pay, reductions in force, and obtaining Paycheck Protection Program (the “PPP”) loans, the PPP is sponsored by the Small Business Administration (the “SBA”). The PPP is part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). We have since significantly increased employment levels and restored pay to employees. Although we currently have a meaningful cash balance and generated significant cash flow from operations during this quarter, should business decline significantly as a result of the pandemic we would not likely be able to take some of the same actions without negatively impacting the long-term viability of the business. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur.
Nasdaq Listing
On April 24, 2020, the Company received a letter from the Listing Qualifications Staff of the Nasdaq Stock Market (“Nasdaq”), notifying the Company that it no longer satisfied Nasdaq Listing Rule 5550(a)(2) (the “Rule”), which requires the Company to a maintain minimum bid price of $1 per share.
On June 1, 2020, the Company received a letter from the Listing Qualifications Staff of Nasdaq, notifying the Company that it had regained full compliance with the Nasdaq minimum average share price listing requirement Rule. The Company regained compliance after its closing share price on May 29, 2020 and its average closing share price for the consecutive 30-days of trading ending May 29, 2020 were both above $1.00 per share.
Note 2. |
In May 2014,
Leases
On September 25, 2019, the first day of fiscal year 2020, the Company adopted the Financial Accounting Standards Board issuedRevenue from Contracts with Customers (“Topic 606), which was subsequently amended by several("FASB") Accounting Standards Updates. These newUpdate ("ASU") 2016-02, "Leases (Topic 842)." As a result, the Company updated its significant accounting policy for leases. For the impact of the adoption on the Company's consolidated financial statements see Note 3, Recent Accounting Pronouncements and for additional information about our lease arrangements see Note 10, Leases in the notes to our unaudited condensed consolidated financial statements.
The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate office. The lease term begins on the date that the Company takes possession under the lease, including the pre-opening period during construction, when in most cases the Company is not making rent payments (“Rent Holiday”).
Operating lease assets and liabilities are recognized at the lease commencement date for material leases with a term of greater than 12 months. Operating lease liabilities represent the present value of future minimum lease payments. Since our leases do not provide an implicit rate, our operating lease liabilities are calculated using our estimated incremental borrowing rate based on a collateralized borrowing over the term of each individual lease. Minimum lease payments include only fixed lease components of the agreement, as well as variable rate payments that depend on an index, initially measured using the index at the lease commencement date.
Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or updated standards expanded the disclosure requirementsaccrued lease payments, initial direct costs and lease incentives. Lease incentives are recognized when earned and reduce our operating lease asset related to revenuethe lease. They are amortized through the operating lease assets as reductions of rent expense over the lease term.
Operating lease expense is recognized on a straight-line basis over the lease term. Certain of the Company’s operating leases contain clauses that provide for contingent rent based on a percentage of sales greater than certain specified target amounts. Variable lease payments that do not depend on a rate or index, escalation in the index subsequent to the initial measurement, payments associated with non-lease components such as common area maintenance, real estate taxes and revenue recognition. insurance, and short-term lease payments (leases with a term with 12 months or less) are expensed as incurred or when the achievement of the specified target that triggers the contingent rent is considered probable.
9 |
Note 3. | Recent Accounting Pronouncements |
Leases
The Company adopted Topic 606 inASU 2016-02 Leases (Topic 842) on September 25, 2019, the first quarterday of its 2019 fiscal year 2020. This update requires a lessee to recognize on the balance sheet the right-of-use assets and appliedlease liabilities for leases with a lease term of more than twelve months. This update also requires additional disclosures about the guidance retrospectivelyamount, timing, and uncertainty of cash flows arising from leases. This standard is effective for interim and annual periods beginning after December 15, 2018.
We elected the optional transition method option to apply the standard as of the effective date and therefore, we will not apply the standard to the priorcomparative periods presented. Topic 606 primarily impactspresented in our consolidated financial statements. The adoption of this standard had a significant impact on the accounting presentation of the Company’s advertising contribution funds. Because advertising expenses are incurred within the respective year in which contributions are recorded, there was no change to the consolidated balance sheet howeveras we recognized the right-of-use assets and lease liabilities for our operating leases. The adoption had an immaterial impact on the condensed consolidated statement of operations, cash flows and overall liquidity.
We elected to utilize the three practical expedients permitted within the standard, which eliminates the requirement to reassess the conclusions about historical lease identifications, lease classifications, and initial direct costs. We did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease terms and impairments of right-of-use assets. Additionally, we elected to utilize the short-term lease exception policy, which allows us to not apply the recognition requirements of this standard to leases with a term of 12 months or less.
The effect of the changes made to the Company's condensed consolidated balance sheet as of September 25, 2019 for the first three fiscal quartersadoption of 2018 franchise revenues and advertising costsASU 2016-02 Leases (Topic 842) are each $263,000 greater than originally presented, and for the first three fiscal quarters of 2019 franchise revenues and advertising costs are each $240,000 greater than would have been reflected under the former presentation.as follows:
(Tabular dollar amounts in thousands)
Assets | September 24, 2019 | Adoption of Leases (Topic 842) | September 25, 2019 | |||||||||
Non-current assets: | ||||||||||||
Operating lease assets | - | 51,165 | 51,165 | |||||||||
Liabilities | ||||||||||||
Current Liabilities: | ||||||||||||
Operating lease liability | - | 4,346 | 4,346 | |||||||||
Non-current liabilities: | ||||||||||||
Accrued deferred rent | 2,881 | (2,881 | ) | - | ||||||||
Deferred lease incentives | 5,698 | (5,698 | ) | - | ||||||||
Operating lease liabilities, less current portion | - | 55,398 | 55,398 |
The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on the Company's consolidated financial statements.
Note 4. | Revenue |
Revenue Recognition
Revenues consist primarily of sales from restaurant operations andoperations; franchise revenue, which includes franchisee royalties and contributions to advertising funds. Revenues associated with gift card breakage are immaterial to our financials. The Company recognizes revenue, pursuant to the new and updated standards, when it satisfies a performance obligation by transferring control over a product or service to a customer, typically a restaurant customer or a franchisee/licensee.
The Company recognizes revenues in the form of restaurant sales at the time of the sale when payment is made by the customer, as the Company has completed its performance obligation, namely the provision of food and beverage, and the accompanying customer service, during the customer’s visit to the restaurant. The Company sells gift cards to customers and recognizes revenue from gift cards primarily in the form of restaurant revenue. Gift Card breakage, which is recognized when the likelihood of a gift card being redeemed is remote, is determined based upon the Company’s historic redemption patterns, and is immaterial to our overall financial statements.
Revenues we receive from our franchise and license agreements include sales-based royalties, and from our franchise agreements also may include advertising fund contributions, area development fees, and franchisee fees. We recognize sales-based royalties from franchisees and licensees as the underlying sales occur. We similarly recognize advertising fund contributions from franchisees as the underlying sales occur. The Company also provides its franchisees with services associated with opening new restaurants and operating them under franchise and development agreements in exchange for area development and franchise fees. The Company would capitalize these fees upon receipt from the franchisee and then would amortize those over the contracted franchise term as the services comprising the performance obligations are satisfied. We have not received material development or franchise fees in the years presented, and the primary performance obligations under existing franchise and development agreements have been satisfied prior to the earliest period presented in our financial statements.
10 |
Note | 5. | Goodwill and Intangible Assets |
The following table presents goodwill and intangible assets as of June 25, 201930, 2020 and September 25, 2018:24, 2019 (in thousands):
June 25, 2019 | September 25, 2018 | June 30, 2020 | September 24, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||
Intangible assets subject to amortization | ||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||||||||||||||||||||||||||
Franchise rights | 116 | (98 | ) | 18 | 116 | (81 | ) | 35 | $ | - | $ | - | $ | - | $ | 116 | $ | (104 | ) | $ | 12 | |||||||||||||||||||||||||||
Non-compete agreements | 65 | (23 | ) | 42 | 15 | (15 | ) | - | 50 | (24 | ) | 26 | 65 | (26 | ) | 39 | ||||||||||||||||||||||||||||||||
$ | 181 | $ | (121 | ) | $ | 60 | $ | 131 | $ | (96 | ) | $ | 35 | 50 | (24 | ) | 26 | 181 | (130 | ) | 51 | |||||||||||||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Trademarks | $ | 3,900 | $ | - | $ | 3,900 | $ | 3,900 | $ | - | $ | 3,900 | 3,900 | - | 3,900 | 3,900 | - | 3,900 | ||||||||||||||||||||||||||||||
Intangible assets, net | $ | 4,081 | $ | (121 | ) | $ | 3,960 | $ | 4,031 | $ | (96 | ) | $ | 3,935 | $ | 3,950 | $ | (24 | ) | $ | 3,926 | $ | 4,081 | $ | (130 | ) | $ | 3,951 | ||||||||||||||||||||
Goodwill | $ | 15,150 | $ | - | $ | 15,150 | $ | 15,150 | $ | - | $ | 15,150 | $ | 5,150 | $ | - | $ | 5,150 | $ | 15,150 | $ | - | $ | 15,150 |
TheAs discussed further in Note 11, the Company had norecorded a $10,000,000 impairment to goodwill impairment losses in the periods presented in the above table or any prior periods.
In February 2019 the Company acquired allsecond fiscal quarter of the membership interests of three joint venture entities2020 related to which the Company was already a partygoodwill attributable to and the transaction resulted in an increase to non-compete agreements of $50,000, see Note 11.its Bad Daddy’s reporting unit.
There were no impairments to intangible assets during the three quarters ended June 25, 2019 and June 26, 2018.30, 2020. The aggregate amortization expense related to these intangible assets subject to amortization was approximately $25,000 for the three quarters ended June 25, 2019.30, 2020. The franchise rights were fully amortized at the end of the second fiscal quarter of 2020 and the intangible asset and the related accumulated amortization were written off in the third fiscal quarter of 2020.
The estimated aggregate future amortization expense as of June 25, 201930, 2020 is as follows:follows (in thousands):
Remainder of 2019 | $ | 9 | ||||
2020 | 28 | |||||
2021 | 17 | |||||
2022 | 6 | |||||
$ | 60 |
Remainder of 2020 | $ | 3 | ||
2021 | 17 | |||
2022 | 6 | |||
$ | 26 |
On January 26, 2015, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission ("SEC") which was declared effective by the SEC on March 25, 2015. The registration statement allows the Company to issue common stock from time to time up to an aggregate amount of $75 million, of which $22,688,052 has been issued.
Note | 6. | Stock-Based Compensation |
The Company has traditionally maintained incentive compensation plans that include provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, the 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”) during the third fiscal quarter of 2018, pursuant to shareholder approval. Future awards will be issued under the 2018 plan.
Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). The companyCompany recognizes the impact of forfeitures as forfeitures occur.
Our net loss for the three quarters ended June 30, 2020 and June 25, 2019 includes $223,000 and June 26, 2018 includes $331,000, and $303,000, respectively, of compensation costs related to our stock-based compensation arrangements.
Stock Option awards
The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options and stock awards granted during the three quartersquarter ended June 25, 2019.30, 2020. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.
During the three quarters ended June 30, 2020, there were no incentive stock options granted.
During the three quarters ended June 25, 2019, the Company granted a total of 99,832 incentive stock options, from available shares under its 2018 Plan, with exercise prices between $4.66 and $5.00 and per-share weighted average fair values between $2.68 and $3.16.
During the three quarters ended June 26, 2018, the Company granted a total of 18,274 incentive stock options, from available shares under its 2008 Plan, as amended, with an exercise prices between $2.70 and $2.73 and per-share weighted average fair values between $1.65 and $1.95.
In addition to the exercise and grant date prices of the stock option awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the following table:
Year-to-Date | ||||||||
June 25, 2019 Incentive and Non-Qualified Stock Options | June 26, 2018 Incentive and Non-Qualified Stock Options | |||||||
Expected term (years) | 7.5 | 7.5 | ||||||
Expected volatility | 70.65% to 70.80% | 75.33 % to 75.67% | ||||||
Risk-free interest rate | 3.01% to 3.10% | 2.17% to 2.35% | ||||||
Expected dividends | - | - |
11 |
Quarter Ended June 25, 2019 Incentive and Non-Qualified Stock Options | |||
Expected term (years) | 7.5 | ||
Expected volatility | 70.65% to 70.80% | ||
Risk-free interest rate | 3.01% to 3.10% | ||
Expected dividends | - |
We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.
The following table summarizes stock option activity for the three quartersquarter ended June 25, 201930, 2020 under all plans:
Shares | Weighted Average Exercise Price | Weighted Avg. Remaining Contractual Life (Yrs.) | ||||||||||
Outstanding-at beginning of year | 634,647 | $ | 3.36 | |||||||||
Options granted | 99,832 | $ | 4.76 | |||||||||
Options exercised | (667 | ) | $ | 4.41 | ||||||||
Forfeited | (10,881 | ) | $ | 3.87 | ||||||||
Expired | (17,203 | ) | $ | 4.41 | ||||||||
Outstanding June 25, 2019 | 705,728 | $ | 3.52 | 6.3 | ||||||||
Exercisable June 25, 2019 | 436,967 | $ | 3.23 | 4.9 |
Shares | Weighted Average Exercise Price | Weighted Avg. Remaining Contractual Life (Yrs.) | ||||||||||
Outstanding at beginning of year | 703,164 | $ | 3.53 | |||||||||
Options exercised | (15,646 | ) | $ | 1.48 | ||||||||
Forfeited | (45,963 | ) | $ | 3.78 | ||||||||
Expired | (8,579 | ) | $ | 3.45 | ||||||||
Outstanding June 30, 2020 | 632,976 | $ | 3.56 | 5.4 | ||||||||
Exercisable June 30, 2020 | 472,871 | $ | 3.38 | 4.6 |
As of June 25, 2019,30, 2020, the aggregate intrinsic value of both the outstanding and exercisable options was approximately $17,000 and $17,000, respectively.$2,000. Only options whose exercise price is below the current market price of the underlying stock are included in the intrinsic value calculation.
As of June 25, 2019,30, 2020, the total remaining unrecognized compensation cost related to non-vested stock options was $570,000$215,000 and is expected to be recognized over a weighted average period of approximately 2.31.9 years.
There were 15,646 stock options exercised that resulted in an issuance of 2,413 shares during the three quarters ended June 30, 2020 with no proceeds in conjunction with the termination of the Company’s CEO pursuant to a severance and separation agreement. There were 667 stock options exercised during the three quarters ended June 25, 2019 with proceeds of approximately $3,000. There were no stock options exercised during the three quarters ended June 26, 2018.
Restricted Stock Units
During the three quarters ended June 30, 2020 the Company granted a total of 60,336 restricted stock units from available shares under its 2018 Plan. 46,336 shares were issued with a grant date fair market value of $1.54 which is equal to the closing price of the stock on the date of the grant, these restricted stock units vest three years following the grant date. 14,000 shares were issued with a grant date fair market value of $1.67 which is equal to the closing price of the stock on the date of the grant, these restricted stock units vested on their grant date.
During the three quarters ended June 25, 2019, the Company granted a total of 79,988 shares of restricted stock units from available shares under its 2018 Plan.2008 Plan, as amended. The shares were issued with a grant date fair market value of $3.95 which is equal to the closing price of the stock on the date of the grant. The restricted stock units vest over three years following the grant date.
During the three quarters ended June 26, 2018, the Company granted a total of 37,037 shares of restricted stock from available shares under its 2008 Plan, as amended. The shares were issued with a grant date fair market value of $2.70 which is equal to the closing price of the stock on the date of the grant. The restricted stock grant vests over three years following the grant date.
A summary of the status of non-vested restricted stock as of June 25, 201930, 2020 is presented below.
Shares | Grant Date Fair Value Per Share | ||||||
Non-vested shares at beginning of year | 149,614 | $2.70 to $4.18 | |||||
Granted | 79,988 | $3.95 | |||||
Vested | (44,158 | ) | $2.70 to $4.18 | ||||
Non-vested shares at June 25, 2019 | 185,444 | $2.70 to $4.18 |
Shares | Grant Date Fair Value Per Share | ||||||
Non-vested shares at beginning of year | 165,275 | $2.70 to $3.95 | |||||
Granted | 60,336 | $1.54 to $1.67 | |||||
Forfeited | (8,992 | ) | $3.55 to $3.95 | ||||
Vested | (111,670 | ) | $1.67 to $4.18 | ||||
Non-vested shares at June 30, 2020 | 104,949 | $2.70 to $4.18 |
As of June 25, 2019,30, 2020, there was approximately $452,000$198,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately 1.4.9 years.
12 |
Note | 7. | Notes Payable and Long-Term Debt |
Cadence Credit Facility
The Company maintains a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $17,000,000 with a maturity date of December 31, 2021 (the “Cadence Credit Facility”). On February 21, 2019, the Cadence Credit Facility was amended, in connection with the RGWP Repurchase (see note 11),repurchase of minority interests related to three Bad Daddy’s restaurants, to retroactively attribute EBITDA previously attributed to non-controlling interests to the Company for purposes of certain financial covenants. On December 9, 2019, the Cadence Credit Facility was amended in connection with the separation of the Company’s former CEO, to amend the definition of “Consolidated EBITDA” for the purposes of financial covenants, to require certain installment payments, and to permit the company to make “Restricted Payments” (as defined in the Cadence Credit Facility) in the form of repurchases or redemptions of certain equity interests of the Company from former directors and officers of the Company in an aggregate amount not to exceed $100,000. 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%. All 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. As of June 25, 2019,30, 2020, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 5.9228%3.73%.
As a result of entering into the Cadence Credit Facility and various amendments, the Company has paid loan origination costs including professional fees of approximately $292,000 since the inception of the credit facility 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 June 30, 2020, the outstanding balance on borrowings against the facility was $9,900,000. 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 June 30, 2020, the outstanding face value of such letters of credit was $157,500.
Principal payments on the Cadence Credit Facility are required beginning on June 30, 2020 in $250,000 installments on the last business day each of March, June, September, and December in each calendar year. The total loan commitment is permanently reduced by the corresponding amount of each such repayment on such date. New borrowings are permitted up to the amount of the loan commitment. The note matures and is due in its entirety on December 31, 2021.
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 5.35:1, a minimum fixed charge coverage ratio of 1.25:1 and minimum liquidity of $2,000,000. As of June 25, 2019,30, 2020, the Company was in compliance with theall covenants under the Cadence Credit Facility.
AsOn April 14, 2020, the Company entered into a Consent and Forbearance Agreement effective March 31, 2020 (the “Forbearance Agreement”) with respect to the Cadence Credit Facility. The Company informed Cadence that certain events of default may occur as a result of entering intoCompany’s failure to comply with certain financial covenants for the Cadence Credit Facility andfiscal quarter ended on or about March 31, 2020 (collectively, the various amendments,“Potential Events of Default”). Pursuant to the Company paid loan origination costs including professional fees of approximately $232,000 and is amortizing these costs over the termterms of the credit agreement.
The obligationsForbearance Agreement, during the Forbearance Period (as defined below), Cadence agreed to forbear from exercising any available rights and remedies under the Cadence Credit Facility are collateralized byto the extent such rights and remedies arise exclusively as a first-priority lienresult of the Potential Events of Default. Further, Cadence agreed to consent to the Company’s request to defer the principal payment (the “Payment Deferral”) on substantiallythe loans due on June 30, 2020 until the maturity date. The forbearance period (the “Forbearance Period”) expired at 11:59 p.m. (Eastern time) on June 30, 2020 and the Company is currently in compliance with all of the Company’s assets.its financial covenants.
AsPaycheck Protection Program Loans
On May 7, 2020, Good Times Restaurants Inc., and three of June 25, 2019,its wholly-owned subsidiaries, BDI, Drive Thru, and BDC (each a “Borrower”), entered into unsecured loans in the outstanding balance on borrowings againstaggregate principal amount of $11,645,000 (the “Loans”) with Cadence Bank, N.A. (the “Lender”) pursuant to the facility was $11,150,000. AvailabilityPPP.
The Loans are evidenced by individual promissory notes of each of the Cadence Credit Facility for borrowings is reducedBorrowers dated April 29, 2020 executed by each Borrower on May 7, 2020 (together, the “Notes”) in favor of the Lender which Notes bear interest at the rate of 1.00% per annum. All or a portion of the Loans may be forgiven by the outstanding face valueSBA upon application by the Borrowers accompanied by documentation of any letters of credit issuedexpenditures in accordance with SBA requirements under the facility. AsPPP, which includes employees being kept on the payroll for twenty-four weeks after the date of June 25, 2019, the outstanding face valueLoans and the proceeds of such lettersLoans being used for payroll, rent, mortgage interest or utilities. Congress subsequently passed the PPP Flexibility Act which modified certain provisions of credit was $157,500.the PPP program, including expanding the original eight-week covered period to a period of twenty-four weeks. The SBA and the Treasury continue to develop and issue new and updated guidance regarding the PPP loan application process, including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the PPP. The Company continues to track the guidance as it is released and assess and re-assess various aspects of its application as necessary based on the guidance. The Company believes it qualifies for the PPP and is compliant in all aspects with its use of PPP funds. However, in the absence of final guidance or regulations the Company cannot give any assurance that the Loans will be forgivable in whole or in part.
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In the event that any portion of the Loans are not forgiven in accordance with the PPP, following a deferral period that ends November 2, 2020, the Company will be required to pay the Lender monthly payments of principal and interest in an aggregate amount of $489,000 to repay the PPP Loans in full on or before April 29, 2022. The Loans may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Notes contain certifications and agreements related to the PPP, as well as customary default and other provisions. We reflect the full principal amount of the PPP loans as debt, accounting for such loans under ASC 470, with current maturities of approximately $3.8 million. We intend to account for the forgiveness of such loans at the time such forgiveness is granted.
Components of Long-Term Debt
The components of long-term debt as reflected on our consolidated balance sheet are as follows:
Current Maturities | ||||
Cadence Credit Facility | $ | 1,000 | ||
PPP Loans | 3,794 | |||
Total Current Maturities | 4,794 | |||
Maturities due after One Year | ||||
Cadence Credit Facility | 8,900 | |||
PPP Loans | 7,851 | |||
Total Maturities after One Year | $ | 16,751 |
Note | 8. | Net Income (Loss) per Common Share |
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities for this calculation consist of in-the-money outstanding stock options, restricted stock units and warrants (which were assumed to have been exercised at the average market price of the common shares during the reporting period). The treasury stock method is used to measure the dilutive impact of in-the-money stock options.
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding:
Quarter Ended | Year-to-Date | |||||||||||||||
June 25, 2019 | June 26, 2018 | June 26, 2019 | June 26, 2018 | |||||||||||||
Weighted-average shares outstanding-basic | 12,522,778 | 12,468,326 | 12,516,822 | 12,460,467 | ||||||||||||
Effect of potentially dilutive securities: | ||||||||||||||||
Stock options | 15,101 | 102,506 | 0 | 0 | ||||||||||||
Restricted stock units | 185,444 | 94,340 | 0 | 0 | ||||||||||||
Weighted-average shares outstanding-diluted | 12,723,323 | 12,665,172 | 12,516,822 | 12,460,467 | ||||||||||||
Excluded from diluted weighted-average shares outstanding: | ||||||||||||||||
Antidilutive | 654,468 | 272,348 | 891,172 | 747,796 | ||||||||||||
Quarter Ended | Year-to-Date | |||||||||||||||
June 30, 2020 | June 25, 2019 | June 30, 2020 | June 26, 2019 | |||||||||||||
Weighted-average shares outstanding basic | 12,591,079 | 12,522,778 | 12,593,137 | 12,516,822 | ||||||||||||
Effect of potentially dilutive securities: | ||||||||||||||||
Stock options | - | 15,101 | - | - | ||||||||||||
Restricted stock units | 104,949 | 185,444 | - | - | ||||||||||||
Weighted-average shares outstanding diluted | 12,696,028 | 12,723,323 | 12,593,137 | 12,516,822 | ||||||||||||
Excluded from diluted weighted-average shares outstanding: | ||||||||||||||||
Antidilutive | 632,976 | 654,468 | 737,925 | 891,172 |
Note | 9. | Contingent Liabilities and Liquidity |
We remain contingently liable on various leases underlying restaurants that were previously sold to franchisees. We have never experienced any losses related to these contingent lease liabilities, however if a franchisee defaults on the payments under the leases, we would be liable for the lease payments as the assignor or sub-lessor of the lease. Currently we have not been notified nor are we aware of any leases in default by the franchisees, however there can be no assurance that there will not be in the future which could have a material effect on our future operating results.
14 |
The Company and a third-party are both primary tenants on a lease related to a former Good Times restaurant. The third-party has an agreement with the Company to pay all amounts due under this lease. The third party operated the restaurant under a franchise agreement and is also a current franchisee of another Good Times restaurant and is the non-controlling partner in seven joint-venture Good Times restaurants. The Company performs accounting services for the third-party and has direct visibility to its financial position and credit worthiness. Based upon its assessment of such, the Company has not recorded any liability associated with this obligation as it does not expect to be required to pay any amount on the obligation.
Additionally, in the normal course of business, there may be various claims in process, matters in litigation, and other contingencies brought against the company by employees, vendors, customers, franchisees, or other parties. Evaluating these contingencies is a complex process that may involve substantial judgment on the potential outcome of such matters, and the ultimate outcome of such contingencies may differ from our current analysis. We review the adequacy of accruals and disclosures related to such contingent liabilities in consultation with legal counsel. While it is not possible to predict the outcome of these claims with certainty, it is management’s opinion that potential losses associated with such contingencies would be immaterial to our financial statements.
Note | Leases |
The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate office. The initial lease terms range from 10 years to 20 years, most of which include renewal options of 10 to 15 years. The lease term is generally the minimum of the noncancelable period or the lease term including renewal options which are reasonably certain of being exercised up to a term of approximately 20 years.
Some of the leases provide for base rent, plus additional rent based on gross sales, as defined in each lease agreement. The Company is also generally obligated to pay certain real estate taxes, insurance and common area maintenance charges, and various other expenses related to properties, which are expensed as incurred.
Components of operating lease costs are as follows for the fiscal quarter ended June 30, 2020:
Lease cost | Classification | Total | ||||
Operating lease cost | Occupancy, Other restaurant operating costs and General and administrative expenses, net | $ | 1,665 | |||
Variable lease cost | Occupancy | 20 | ||||
Sublease income | Occupancy | (135 | ) | |||
$ | 1,550 |
Components of operating lease costs are as follows for the three fiscal quarters ended June 30, 2020:
Lease cost | Classification | Total | ||||
Operating lease cost | Occupancy, Other restaurant operating costs and General and administrative expenses, net | $ | 5,436 | |||
Variable lease cost | Occupancy | 60 | ||||
Sublease income | Occupancy | (365 | ) | |||
$ | 5,131 |
Weighted average lease term and discount rate are as follows:
June 30, 2020 | ||||
Weighted average remaining lease term (in years) | 10.6 | |||
Weighted average discount rate | 5.0 | % |
Supplemental cash flow disclosures for the three fiscal quarters ended June 30, 2020:
June 30, 2020 | ||||
Cash paid for operating lease liabilities | $ | 5,125 | ||
Non-cash operating lease assets obtained in exchange for operating lease liabilities | $ | 3,077 |
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Supplemental balance sheet disclosures:
June 30, 2020 | ||||||
Right-of-use assets | Operating lease assets | $ | 50,864 | |||
Current lease liabilities | Operating lease liability | $ | 4,629 | |||
Non-current lease liabilities | Operating lease liability, less current portion | 55,462 | ||||
Total lease liabilities | $ | 60,091 |
Future minimum rent payments for our operating leases for each of the next five years as of June 30, 2020 are as follows:
Fiscal year ending: | Total | |||
Remainder of 2020 | $ | 2,049 | ||
2021 | 7,477 | |||
2022 | 7,519 | |||
2023 | 7,601 | |||
2024 | 7,453 | |||
Thereafter | 46,415 | |||
Total minimum lease payments | 78,514 | |||
Less: imputed interest | (18,423 | ) | ||
Present value of lease liabilities | $ | 60,091 |
The above future minimum rental amounts exclude the amortization of deferred lease incentives, renewal options that are not reasonably assured of renewal, and contingent rent. The Company generally has escalating rents over the term of the leases and records rent expense on a straight-line basis.
Note 11. | Impairment of Long-Lived Assets and Goodwill |
Long-Lived Assets.We review our long-lived assets for impairment, including land, property and equipment whenever events or changes in circumstancesfor impairment when there are factors that indicate that the carrying amount of an asset may not be recoverable. We assess recovery of assets at the individual restaurant level and typically include an analysis of historical cash flows, future operating plans, and cash flow projections in assessing whether there are indicators of impairment. Recoverability of assets to be held and used is measured by a comparison ofcomparing the capitalized costsnet book value of the assets of an individual restaurant to the fair value of those assets. This impairment process involves significant judgment in the use of estimates and assumptions pertaining to future undiscounted net cash flows expected to be generated by the assetsprojections and the expected cash flows are based on recent historical cash flows at the restaurant level (the lowest level that cash flows can be determined).operating results.
On January 30, 2018Given the Company closed oneresults of our analysis at September 24, 2019, we identified five restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets.
Two of these restaurants are Good Times restaurantrestaurants in Aurora, Colorado. AWe recorded a non-cash impairment charge of $219,000$391,000, related to this restaurant was previously takenthe impairment of these restaurants in the fiscal year endedquarter ending September 26, 2017 and no additional loss from disposal of assets has been subsequently recognized in the current year, nor is any additional loss expected. We recorded accretion expense recognized as non-cash rent of approximately $48,000 in the fiscal year ended September 25, 2018, and approximately $73,000 in the three quarters ended June 25, 2019, reflecting the expected fair value of future lease costs, net of sublease income, associated with the closing of this restaurant. Subsequent to the end of the fiscal third quarter24, 2019. In July of 2019, the Company entered into a sublease agreement for one of these two restaurants whereby the Company, upon lease commencement subject to due diligence provisions, will receive sublease income substantially equal to its cash lease costs associated with this location. We continued to operate the restaurant until December 31, 2019, the tenant took possession on January 1, 2020 and the sublease commenced in May 2020.
Three of these restaurants are Bad Daddy’s restaurants, two in Colorado and one in South Carolina. We recorded non-cash charges of $2,380,000 related to the impairment of these restaurants during the fiscal quarter ending September 24, 2019.
Given the results of our analysis at March 27, 2018,31, 2020, we identified one restaurantfive additional restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets. This restaurant, an additional Good Times restaurant
The restaurants are all Bad Daddy’s restaurants, two in Aurora, Colorado, was closed on April 22, 2018.North Carolina and one each in Tennessee, Georgia and Colorado. We recorded a non-cash chargecharges of $72,000$4,359,000 related to the impairment of this restaurantthese restaurants during the quarter ending March 27, 2018. No31, 2020.
Given the results of our analysis at June 30, 2020, we identified one additional loss from disposalBad Daddy’s restaurant in Colorado where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets is expected associated with this property. Prior to its closure, on April 6, 2018, the Company entered into a subleaseand recorded non-cash charges of this property, the terms of which will provide sublease income substantially equal$932,000 related to the lease costs overimpairment of these restaurants during the approximate 5 remaining years ofquarter ending June 30, 2020.
There were no impairments in the lease.three fiscal quarters ending June 25, 2019.
Trademarks.Trademarks have been determined to have an indefinite life. We evaluate our trademarks for impairment annually and on an interim basis as events and circumstances warrant by comparing the fair value of the trademarks with their carrying amount. There was no impairment required to the acquired trademarks as of June 25, 201930, 2020 and June 26, 2018.25, 2019.
16 |
Goodwill.Goodwill represents the excess of cost over fair value of the assets of businesses the Company acquired. Goodwill is not amortized, but rather, the Company is required to test goodwill for impairment on an annual basis or whenever indications of impairment arise. The Company considers its operations to be comprised of two reporting units: (1) Good Times restaurants and (2) Bad Daddy’s restaurants. As of June 25, 2019,30, 2020, the Company had $96,000 of goodwill attributable to the Good Times reporting unit and $15,054,000$5,054,000 of goodwill attributable to its Bad Daddy’s reporting unit.
In March 2020, the outbreak of the COVID-19 pandemic prompted authorities in most jurisdictions where the Company operates to issue stay-at-home orders, leading to an unexpected significant disruption to the Company's business requiring the Company to close its restaurant dining rooms and operate its Bad Daddy’s restaurants under a delivery and carry-out model. As such, the consequences of the outbreak of the COVID-19 pandemic coupled with a sustained decline in the Company's stock price were determined to be indicators of impairment for its Bad Daddy’s reporting unit. As such, using Level 3 inputs, the Company performed a quantitative goodwill impairment assessment using both the discounted cash flow method and guideline public company method to determine the fair value of its reporting unit. Significant assumptions and estimates used in determining fair value include future revenues, operating costs, working capital changes, capital expenditures, and a discount rate that approximates the Company's weighted average cost of capital. Based on the quantitative assessment, the Company determined that the fair value of its reporting unit was less than its carrying value and recognized a non-cash goodwill impairment charge of $10.0 million in the fiscal quarter ending March 31,2020, equal to the excess of the Bad Daddy’s reporting unit's carrying value above its fair value. No goodwill impairment charges were recognized as of June 25, 2019 and June 26, 2018.related to goodwill attributable to its Good Times reporting unit.
Changes in the carrying amount of goodwill for the three quarters ended June 30, 2020 are as follows (in thousands):
Total Goodwill | ||||
Balance as of September 24, 2019 | $ | 15,150 | ||
Impairment of Goodwill | (10,000 | ) | ||
Balance as of June 30, 2020 | 5,150 |
Note | 12. | Income Taxes |
We account for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted as necessary.
The Company has significant net operating loss carry-forwardscarryforwards from prior years and incurred additional net operating losses during the three quarters ended June 25, 201930, 2020 and June 26, 2018.25, 2019. These losses resulted in an increase in the related deferred tax assets; however, full valuation allowances were providedmade which reduced these deferred tax assets to zero; therefore, no income tax provision or benefit was recognized for the three quartersquarter ended June 25, 201930, 2020 and June 26, 201825, 2019 resulting in an effective income tax rate of 0% for both periods.
The Company is subject to taxation in various jurisdictions within the U.S. The Company continues to remain subject to examination by U.S. federal authorities for the years 2016 through 2018.2019. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. No accrual for interest and penalties was considered necessary as of June 25, 2019.30, 2020.
Note | 13. | Non-controlling Interests |
Non-controlling interests are presented as a separate item in the stockholders’ equity section of the condensed consolidated balance sheet. The amount of consolidated net income or loss attributable to non-controlling interests is presented on the face of the condensed consolidated statement of operations. Changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions, while changes in ownership interest that do result in deconsolidation of a subsidiary require gain or loss recognition based on the fair value on the deconsolidation date.
The equity interests of the unrelated limited partners and members are shown on the accompanying consolidated balance sheet in the stockholders’ equity section as a non-controlling interest and is adjusted each period to reflect the limited partners’ and members’ share of the net income or loss as well as any cash contributions or distributions to or from the limited partners and members for the period. The limited partners’ and members’ share of the net income or loss in the subsidiary is shown as non-controlling interest income or expense in the accompanying consolidated statement of operations. All inter-company accounts and transactions are eliminated.
On February 6, 2019, the Company concurrently entered into and closed on a Membership Interest Purchase Agreement with RGWP, LLC (the “RGWP Repurchase”), pursuant to which the Company agreed to acquire all of the remaining membership interests of three entities to which the Company is already a party to and already owned a controlling interest: Bad Daddy’s Burger Bar of Seaboard LLC, Bad Daddy’s Burger Bar of Cary, LLC, and BDBB of Olive Park NC, LLC. The purchase price was approximately $3.0 million. These entities own and operate three Bad Daddy’s Burger Bar restaurants in the greater Raleigh, NC market. The purchase agreement contains various representations, warranties, and covenants of the Seller that are customary in transactions of this nature.
The RGWP Repurchase resulted in a $788,000 reduction in non-controlling interests, an increase to non-compete agreements of $50,000 and a $2,171,000 reduction in additional paid in capital.
17 |
The following table summarizes the activity in non-controlling interests during the quarter ended June 25, 2019:30, 2020 (in thousands):
Bad Daddy’s | Good Times | Total | ||||||||||
Balance at September 25, 2018 | $ | 2,861 | $ | 377 | $ | 3,238 | ||||||
Income attributable to non-controlling interests | 671 | 241 | 912 | |||||||||
Net distributions to unrelated limited partners | (953 | ) | (280 | ) | (1,233 | ) | ||||||
Purchase of non-controlling interest | (788 | ) | - | (788 | ) | |||||||
Balance at June 25, 2019 | $ | 1,791 | $ | 338 | $ | 2,129 |
Bad Daddy’s | Good Times | Total | ||||||||||
Balance at September 24, 2019 | $ | 1,190 | $ | 332 | $ | 1,522 | ||||||
Income | 318 | 420 | 738 | |||||||||
Contributions | 22 | - | 22 | |||||||||
Distributions | (386 | ) | (494 | ) | (880 | ) | ||||||
Balance at June 30, 2020 | $ | 1,144 | $ | 258 | $ | 1,402 |
Our remaining non-controlling interests consist of one joint venturejoint-venture partnership involving seven Good Times restaurants and five joint venturejoint-venture partnerships involving five Bad Daddy’s restaurants.
In May 2014, the FASB issued ASU No. 2014-09,“Revenue from Contracts with Customers (Topic 606).” This update was issued to replace the current revenue recognition guidance, creating a more comprehensive five-step model. In March 2016, the FASB issued No. ASU 2016-04, “Liabilities – Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products.” This pronouncement provides guidance for the derecognition of prepaid stored-value product liabilities, consistent with the breakage guidance in Topic 606. These amendments are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We adopted these ASUs effective as of September 26, 2018. The adoption of these new standards did not have a material impact to our revenue recognition related to Company-owned restaurant sales, recognition of royalty fees from our franchise agreement, or impact from recognition of gift card breakage. As discussed in Note 2 and further described below, the adoption of this standard did have an impact on the presentation of advertising fund contributions from our franchises. Prior to the adoption of these new standards, we accounted for advertising expenses net of advertising contributions from our franchisees. Subsequently, as described in Notes 1 and 2, we now account for franchisee advertising contributions as a component of franchise revenue. Because advertising expenses are incurred within the respective year in which contributions are recorded, there was no change to the consolidated balance sheet, however for the first three fiscal quarters of 2018 franchise revenues and advertising costs are each $263,000 greater than originally presented, and for the first three fiscal quarters of 2019 franchise revenues and advertising costs are each $240,000 greater than would have been reflected under the former presentation.
In February 2016, the FASB issued ASU No. 2016-02,“Leases (Topic 842)”, (ASU 2016-02), which replaces the existing guidance in Accounting Standard Codification 840, Leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. This pronouncement requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. Subsequently FASB has issued several other Accounting Standards Updates, including ASU 2018-11 and ASU 2018-12, which among other things provide for a practical expedient related to the recognition of the cumulative effective on retained earnings resulting from the adoption of the pronouncements. We expect to adopt these ASU’s effective September 25, 2019 and expect that the adoption of these standards will result in a significant increase in our long-term assets and liabilities given we have a significant number of leases.
In January 2017, the FASB issued ASU No. 2017-04,“Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the impairment test applied to goodwill. Under the new standard, goodwill impairment tests will compare the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. This pronouncement is effective for annual and interim periods beginning after December 15, 2019 and should be applied on a prospective basis. We adopted this ASU effective as of the quarter-end March 26, 2019. The adoption of the new standard did not have a material impact on our financial position or results from operations.
Note | 14. | Subsequent Events |
None.
Note | 15. | Segment Reporting |
All of our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service upscale casual dining industry while our Good Times Burgers and Frozen Custard restaurants (Good Times) compete in the quick-service industry segment while our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service industry segment.drive-through dining industry. We believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results. Income (loss) from operations represents revenues less restaurant operating costs and expenses, directly allocable general and administrative expenses, and other restaurant-level expenses directly associated with each brand including depreciation and amortization, pre-opening costs and losses or gains on disposal of property and equipment. Unallocated corporate capital expenditures are presented below as reconciling items to the amounts presented in the consolidated financial statements.
The following tables present information about our reportable segments for the respective periods:periods (in thousands):
Quarter Ended | Year-to-Date | Quarter Ended | Year-to-Date | |||||||||||||||||||||||||||||
June 25, 2019 | June 26, 2018 | June 25, 2019 | June 26, 2018 | June 30, 2020 (13 Weeks) | June 25, 2019 (13 Weeks) | June 30, 2020 (27 Weeks) | June 25, 2019 (26 Weeks) | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Bad Daddy’s | $ | 21,181 | $ | 17,862 | $ | 59,996 | $ | 48,985 | $ | 14,928 | $ | 21,181 | $ | 57,199 | $ | 59,996 | ||||||||||||||||
Good Times | 8,276 | 8,401 | 22,003 | 23,722 | 9,429 | 8,269 | 24,154 | 21,986 | ||||||||||||||||||||||||
$ | 29,457 | $ | 26,263 | $ | 81,999 | $ | 72,707 | $ | 24,357 | $ | 29,450 | $ | 81,353 | $ | 81,982 | |||||||||||||||||
Income (loss) from operations | ||||||||||||||||||||||||||||||||
Bad Daddy’s | $ | 494 | $ | 430 | $ | 300 | $ | 438 | $ | (906 | ) | $ | 494 | $ | (15,906 | ) | $ | 300 | ||||||||||||||
Good Times | 650 | 423 | 505 | 265 | 1,827 | 650 | 2,036 | 505 | ||||||||||||||||||||||||
Corporate | (68 | ) | (72 | ) | (292 | ) | (290 | ) | (78 | ) | (68 | ) | (192 | ) | (292 | ) | ||||||||||||||||
$ | 1,076 | $ | 781 | $ | 513 | $ | 413 | $ | 843 | $ | 1,076 | $ | (14,062 | ) | $ | 513 | ||||||||||||||||
Capital expenditures | ||||||||||||||||||||||||||||||||
Bad Daddy’s | $ | 609 | $ | 2,270 | $ | 3,727 | $ | 6,259 | $ | 330 | $ | 609 | $ | 2,171 | $ | 3,727 | ||||||||||||||||
Good Times | 301 | 113 | 930 | 290 | 3 | 301 | 90 | 930 | ||||||||||||||||||||||||
Corporate | 13 | 8 | 59 | 11 | 7 | 13 | 33 | 59 | ||||||||||||||||||||||||
$ | 923 | $ | 2,391 | $ | 4,716 | $ | 6,560 | $ | 340 | $ | 923 | $ | 2,294 | $ | 4,716 |
June 25, 2019 | September 25, 2018 | June 30, 2020 | September 24, 2019 | |||||||||||||
Property and equipment, net | ||||||||||||||||
Bad Daddy’s | $ | 30,829 | $ | 29,642 | $ | 24,054 | $ | 30,479 | ||||||||
Good Times | 5,594 | 5,234 | 4,269 | 4,890 | ||||||||||||
Corporate | 243 | 369 | 237 | 308 | ||||||||||||
$ | 36,666 | $ | 35,245 | $ | 28,560 | $ | 35,677 |
18 |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and the disclosure of risk factors in the Company’s form 10-K for the fiscal year ended September 25, 2018.24, 2019. Also, documents subsequently filed by us with the SEC and incorporated herein by reference may contain forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following:
(I) | The disruption to our business from the novel coronavirus (COVID-19) pandemic and the impact of the pandemic on our results of operations, financial condition and prospects. The disruption and effect on our business may vary depending on the duration and extent of the COVID-19 pandemic and the impact of federal, state and local governmental actions and customer behavior in response to the pandemic. |
(II) | We compete with numerous well-established competitors who have substantially greater financial resources and longer operating histories than we do. Competitors have increasingly offered selected food items and combination meals, including hamburgers, at discounted prices, and continued discounting by competitors may adversely affect revenues and profitability of Company restaurants. |
(II) | We may be negatively impacted if we experience same store sales declines. Same store sales comparisons will be dependent, among other things, on the success of our advertising and promotion of new and existing menu items. No assurances can be given that such advertising and promotions will in fact be successful. |
We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers' compensation or energy; inadequate number of hourly paid employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 25, 2018.24, 2019.
Overview.
Good Times Restaurant Inc., through its subsidiaries (collectively, the “Company” or “we”, “us” or “our”) operates and franchises/licenses full-service hamburger-oriented restaurants under the name Bad Daddy’s Burger Bar (Bad Daddy’s) and operates and franchises hamburger-oriented drive-through restaurants under the name Good Times Burgers & Frozen Custard (Good Times).
We are focused on developingtargeted unit growth of the Bad Daddy’s concept with company-owned restaurants in major markets ofwhile at the U.S., while continuing to improvesame time growing same store sales and improving the profitability of Good Times, redeploying profits generated from Good Times intoboth the Bad Daddy’s concept.and the Good Times concepts.
COVID-19
The global crisis resulting from the spread of COVID-19 had a substantial impact on our restaurant operations for the 13-week and 40-week periods ended June 30, 2020. During portions of the month of March 2020 through late May 2020, all of the Company’s Bad Daddy’s Burger Bar restaurants were open only for delivery and carry-out service, with dining rooms closed by government orders. Beginning in late May 2020, we began to re-open dining rooms at Bad Daddy’s as local regulations allowed. By early June, we had re-opened all the dining rooms at Bad Daddy’s, which currently remain open. Although our dining rooms are open, all operate at some reduction of capacity, whether driven by explicit capacity reductions under government orders, or due to social distancing protocols that are either mandated by the same government orders, or which we abide by as under our own internal protocols designed to maintain a safe foodservice environment, both for our employees and for our customers.
Our operating results substantially depend upon our ability to drive traffic to our restaurants, and for our Bad Daddy’s Burger Bar restaurants, to serve guests in our dining rooms. We cannot currently estimate the duration of the impact of the COVID-19 pandemic on our business; neither are we are unable to predict how the pandemic will evolve nor how various government entities will respond to its evolution. Should governments choose to reverse course and re-close dining rooms, 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.
Additionally, in connection with spread of COVID-19, there have been disruptions in various food supply chains in the United States. Our operating results substantially depend upon our ability to obtain sufficient quantities of products such as beef, bacon, and other products used in the production of items served and sold to our guests. Ongoing impacts of the COVID-19 pandemic could result in product shortages and in-turn could require us to serve a limited menu, restrict number of items purchased per guest, or close some or all of our restaurants for an indeterminate period of time. Ongoing material adverse impacts from the COVID-19 pandemic could result in reduced revenue and cash flow and could affect our assessments of impairment of intangible assets, long-lived assets, or goodwill.
19 |
We took extraordinary actions to manage our liquidity position in response to COVID-19, including temporarily reducing employee pay, reductions in force, and obtaining PPP loans under the CARES Act. We have since significantly increased employment levels and restored pay to employees. Although we currently have a meaningful cash balance and generated significant cash flow from operations during this quarter, should business decline significantly as a result of the pandemic we would not likely be able to take some of the same actions without negatively impacting the long-term viability of the business. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur.
Growth Strategies and Outlook.
We believe there are significant opportunities to develop new units, grow customer traffic and increase awareness of our brands. The following setsPrior to the COVID-19 pandemic we reduced our development profile as we sought to improve our financial position, and while we believe there are unit growth opportunities for the key elementsboth of our growth strategy:concepts, we are evaluating that in-line with the impact of the pandemic on the restaurant industry.
Restaurant locations.
As of June 25, 2019,30, 2020, we operated, franchised or licensed a total of thirty-fivethirty-nine Bad Daddy’s restaurants and thirty-fourthirty-three Good Times restaurants. The following table presents the number of restaurants operating at the end of the first threethird fiscal quarters of 20192020 and 2018.2019.
Company-Owned/Co-Developed/Joint Venture:Joint-Venture:
State | Good Times Burgers & Frozen Custard | Bad Daddy's Burger Bar | Total | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Colorado | 26 | 26 | 12 | 12 | 38 | 38 | ||||||||||||||||||
Georgia | 0 | 0 | 4 | 2 | 4 | 2 | ||||||||||||||||||
Oklahoma | 0 | 0 | 1 | 1 | 1 | 1 | ||||||||||||||||||
North Carolina | 0 | 0 | 14 | 11 | 14 | 11 | ||||||||||||||||||
South Carolina | 0 | 0 | 1 | 0 | 1 | 0 | ||||||||||||||||||
Tennessee | 0 | 0 | 1 | 1 | 1 | 1 | ||||||||||||||||||
Total: | 26 | 26 | 33 | 27 | 59 | 53 |
Bad Daddy’s Burger Bar | Good Times Burgers & Frozen Custard | Total | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Alabama | 1 | - | - | - | 1 | - | ||||||||||||||||||
Colorado | 12 | 12 | 25 | 26 | 37 | 38 | ||||||||||||||||||
Georgia | 4 | 4 | - | - | 4 | 4 | ||||||||||||||||||
North Carolina | 14 | 14 | - | - | 14 | 14 | ||||||||||||||||||
Oklahoma | 1 | 1 | - | - | 1 | 1 | ||||||||||||||||||
South Carolina | 3 | 1 | - | - | 3 | 1 | ||||||||||||||||||
Tennessee | 2 | 1 | - | - | 2 | 1 | ||||||||||||||||||
Total | 37 | 33 | 25 | 26 | 62 | 59 |
Franchise/License:
State | Good Times Burgers & Frozen Custard | Bad Daddy's Burger Bar | Total | |||||||||||||||||||||||||||||||||||||||||||||
Bad Daddy’s Burger Bar | Good Times Burgers & Frozen Custard | Total | ||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||
Colorado | 6 | 8 | 0 | 0 | 6 | 8 | - | - | 6 | 7 | 6 | 7 | ||||||||||||||||||||||||||||||||||||
North Carolina | 0 | 0 | 1 | 1 | 1 | 1 | 1 | 1 | - | - | 1 | 1 | ||||||||||||||||||||||||||||||||||||
South Carolina | 0 | 0 | 1 | 1 | 1 | 1 | 1 | 1 | - | - | 1 | 1 | ||||||||||||||||||||||||||||||||||||
Wyoming | 2 | 2 | 0 | 0 | 2 | 2 | - | - | 2 | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||||
Total: | 8 | 10 | 2 | 2 | 10 | 12 | ||||||||||||||||||||||||||||||||||||||||||
Total | 2 | 2 | 8 | 9 | 10 | 11 |
Results of Operations
Fiscal quarter ended June 25, 201930, 2020 compared to fiscal quarter ended June 26, 2018:25, 2019:
Net Revenues.Net revenues for the quarter ended June 25, 2019 increased $3,194,00030, 2020 decreased $5,093,000 or 12.2%17.3% to $29,457,000$24,357,000 from $26,263,000$29,450,000 for the quarter ended June 26, 2018.25, 2019. Bad Daddy’s concept revenues increased $3,319,000decreased $6,253,000 while our Good Times concept revenues decreased $125,000.increased $1,160,000.
Bad Daddy’s restaurant sales increased $3,315,000decreased $6,165,000 to $14,915,000 for the quarter ended June 30, 2020 from $21,080,000 for the quarter ended June 25, 2019 from $17,765,000 for the quarter ended June 26, 2018, primarily attributable to the six2019. Sales were positively impacted by four new restaurants opened subsequent toin fiscal 2019 and two new restaurants opened in the thirdfirst fiscal quarter of 2018.2020, offset by the negative impact of our dining room closures due to the COVID-19 pandemic. Bad Daddy’s same store restaurant sales decreased 0.7%36.7% during the quarter ended June 25, 201930, 2020 compared to the same prior-year quarter.quarter, substantially driven by decreases during April and May, when dining rooms were closed, and to a lesser amount when dining rooms were opened, but with capacity restrictions. Bad Daddy’s restaurants are included in same store sales after they have been open a full eighteen months. Comparable sales are calculated excluding weeks during which restaurants are closed for major remodels. The average menu price increase for the quarter ended June 25, 201930, 2020 over the same prior-year quarter was approximately 1.4%2.9%. There were twenty-fourthirty-two restaurants included in the same store sales base at the end of the quarter. Additionally, net revenues increasedwere reduced by $4,000 due to higher$88,000 in lower franchise revenuesroyalties and license fees compared to the same prior-year quarter. Thequarter primarily due to the temporary closure of the Charlotte Airport licensee. Franchise revenues in the current and prior year quarters include franchisefranchisee advertising contributions of $4,000.$3,000 and $4,000, respectively.
20 |
Good Times restaurant sales decreased $125,000increased $1,175,000 to $9,275,000 for the quarter ended June 30, 2020 from $8,100,000 for the quarter ended June 25, 2019 from $8,225,000 for the quarter ended June 26, 2018.2019. Good Times same store restaurant sales increased 2.8%11.9% during the quarter ended June 25, 201930, 2020 compared to the same prior-year quarter. To align Good Times’ same store sales calculations with same store sales calculationsquarter, due to improved customer traffic in May and June as a result of increased preference for Bad Daddy’s, beginningdrive-thru service. One restaurant that was closed for remodeling in fiscal 2018 Good Times restaurants arethe prior year quarter was not included in the same store sales calculation after they have been open a full eighteen months. The same store sales increase was offset by a decrease in restaurant sales of $344,000 due to one restaurant that closed in April of 2018 and one that was closed for most of the current fiscal quarter for a remodel.group. The average menu price increase for the quarter ended June 25, 201930, 2020 over the same prior-year quarter was approximately 3.9%4.9%. Total franchiseFranchise revenues were unchangeddecreased $14,000 for the quarter ended June 25, 2019 at $176,000,30, 2020, compared to the same prior year quarter. Theperiod. Franchise revenues for the current and prior year quarters include franchisefranchisee advertising contributions of $93,000$64,000 and $84,000,$87,000, respectively.
Restaurant Operating Costs
Food and Packaging Costs. Food and packaging costs for the quarter ended June 25, 2019 increased $696,00030, 2020 decreased $1,805,000 to $8,529,000 (29.2%$6,724,000 (27.8% of restaurant sales) from $7,833,000 (30.1%$8,529,000 (29.2% of restaurant sales) for the quarter ended June 26, 2018.25, 2019.
Bad Daddy’s food and packaging costs were $3,932,000 (26.4% of restaurant sales) for the quarter ended June 30, 2020, down from $6,063,000 (28.8% of restaurant sales) for the quarter ended June 25, 2019, up from $5,179,000 (29.2% of restaurant sales) for the quarter ended June 26, 2018.2019. This increasedecrease is primarily dueattributable to a greater number of operating restaurantslower restaurant sales during the current quarter versus the same quarter in the prior year. The declinedecrease as a percent of sales is primarilyattributable to menu mix shift from a limited menu during the ongoing COVID-19 pandemic, improved cost on soft beverage because refills are not available on off-premise sales, reduced discounting due to the reduction in on-premises sales, and increased pricing charged on sales through third-party delivery services, typically at a combination of higher menu10% to 20% premium to purchases made in-store or through our online ordering system. Purchase prices combined with lower costs of proteins, primarily beef.generally increased on beef and bacon but generally decreased on chicken, on a year-over-year basis.
Good Times food and packaging costs were $2,792,000 (30.1% of restaurant sales) for the quarter ended June 30, 2020, up from $2,466,000 (30.4% of restaurant sales) for the quarter ended June 25, 2019, down from $2,654,000 (32.3% of restaurant sales) for the quarter ended June 26, 2018. The2019. This decrease as a percent of sales is due primarily to increasedthe impact of higher menu prices, coupled with reduced beef prices,pricing and targeted product changes.menu engineering, which offset purchase price increases on our primary ingredients.
Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the quarter ended June 25, 2019 increased $1,522,00030, 2020 decreased $3,288,000 to $10,677,000 (36.6%$7,389,000 (30.5% of restaurant sales) from $9,155,000 (35.2%$10,677,000 (36.6% of restaurant sales) for the quarter ended June 26, 2018.25, 2019.
Bad Daddy’s payroll and other employee benefit costs were $7,851,000 (37.2%$4,780,000 (32.1% of restaurant sales) for the quarter ended June 25, 2019 up30, 2020 down from $6,439,000 (36.2%$7,851,000 (37.2% of restaurant sales) in the same prior year period. The $1,412,000 increase was$3,071,000 decrease is primarily attributable to lower restaurant sales during the eight new restaurants openedcurrent quarter versus the same quarter in the last three quarters of fiscal 2018 and two new restaurants opened in the first three quarters of fiscal 2019.prior year. As a percent of sales, payroll and employee benefits costs increaseddecreased by 1.0%,5.1% primarily attributable to staffing reductions associated with the result of increased wages for back of house staff in all states due to a competitive market for workers and statutory wage increases for front-of-house employees in Colorado, which in total exceeded the impactclosure of our year-over-year menu price increases.dining rooms for much of the quarter as well as reductions in management staffing.
Good Times payroll and other employee benefit costs were $2,826,000 (34.9%$2,609,000 (28.1% of restaurant sales) in the quarter ended June 25, 2019, up30, 2020, down from $2,716,000 (33.0%$2,826,000 (34.9% of restaurant sales) in the same prior yearprior-year period. Payroll and other employee benefit costs increased $187,000 forThe $216,000 decrease was partially attributable to labor saving initiatives implemented during the restaurants that were open in both quarters in 2018 and 2019. The increase was due tocurrent fiscal quarter as well as labor efficiencies gained though higher average weeklymenu pricing. As a percent of sales, payroll and a higher average wage paid to our employees. The average wage increased approximately 10.8%employee benefits costs decreased by 6.8% in the quarter ended June 25, 201930, 2020 compared to the same prior year periodperiod. This decrease is primarily attributable to a very competitive labor marketthe leveraging impact of the significant sales increases as well as staffing reductions in Coloradolate March and statutory increasesearly April of 2020 as we entered the pandemic. The average wage paid to our employees increased approximately 1.1% in the minimum wage rate. The increase was offset by a decrease in payroll and other employee benefit costs of $77,000 fromquarter ended June 30, 2020 compared to the same prior-year quarter due to one store that closed in April of 2018 and one store that was closed for most of the current fiscal quarter for a remodel.prior year period.
Occupancy Costs. Occupancy costs for the quarter ended June 25, 2019 increased $241,00030, 2020 decreased $2,000 to $2,091,000 (7.2%$2,089,000 (8.6% of restaurant sales) from $1,850,000$2,091,000 (7.2% of restaurant sales) for the quarter ended June 26, 2018.25, 2019.
Bad Daddy’s occupancy costs were $1,391,000 (6.6%$1,486,000 (10.0% of restaurant sales) for the quarter ended June 25, 201930, 2020 up from $1,156,000 (6.5%$1,391,000 (6.6% of restaurant sales) in the same prior year period. The $235,000$95,000 increase was primarily attributable to the sixfour new restaurants opened subsequentin fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020, offset by rent abatements of approximately $85,000 granted by various landlords due to the endCOVID-19 pandemic. The increase as a percentage of sales was due to general increases in our operating lease costs as well as the third quarterdeleveraging effect of 2018.lower restaurant sales.
Good Times occupancy costs were $700,000 (8.6%$603,000 (6.5% of restaurant sales) in the quarter ended June 25, 2019, up30, 2020, down from $694,000 (8.4%$700,000 (8.6% of restaurant sales) in the same prior year period. The $6,000 increase$97,000 decrease was primarily attributable to an increase in property taxes and common area costs comparedcash rent abatements of approximately $69,000 granted by various landlords due to the same prior year period.COVID-19 pandemic, as well as other decreases in our operating lease costs and property taxes.
Other Operating Costs. Other operating costs for the quarter ended June 25, 2019,30, 2020, increased $616,000$94,000 to $2,989,000 (10.2%$3,164,000 (13.1% of restaurant sales) from $2,373,000 (9.1% of restaurant sales) for the quarter ended June 26, 2018.
Bad Daddy’s other operating costs were $2,339,000 (11.1%$3,070,000 (10.5% of restaurant sales) for the quarter ended June 25, 20192019.
21 |
Bad Daddy’s other operating costs were $2,419,000 (16.2% of restaurant sales) for the quarter ended June 30, 2020 up from $1,725,000 (9.7%$2,396,000 (11.4% of restaurant sales) in the same prior year period. The $614,000$23,000 increase was primarilypartially attributable to the eightfour new restaurants opened in the last two quarters of fiscal 20182019 and two new restaurants opened in the first two quartersfiscal quarter of fiscal 2019. The percentage2020. Other restaurant operating costs were significantly reduced due to the large decrease in sales compared to the prior year quarter, however, the decrease was mostly offset by a $558,000 increase was primarily attributable to higher costs of general restaurant supplies and approximately $183,000 of increasedin commissions paid to delivery service providers in the current quarter which were not incurred inyear compared to the prior year quarter.year. The percentage increase was primarily attributable to the deleveraging impact of lower overall sales and a significant shift in delivery sales as a percentage of overall sales, as customers migrated to delivery during the pandemic and dining rooms were generally closed.
Good Times other operating costs were $650,000$745,000 (8.0% of restaurant sales) in the quarter ended June 25, 2019,30, 2020, up from $648,000 (7.9%$674,000 (8.3% of restaurant sales) in the same prior year period. The percentage increase was primarily attributable to higher costs of general restaurant supplies and approximately $25,000 ofan approximate $87,000 increase in commissions paid to delivery service providers in the current quarter which were not incurred in the prior year quarter. The increase in commissions in the current quarter was offset by a $19,000 decreasedecreases in costs due to oneother general restaurant that closed in April 2018supplies and one that was closed for most of the current fiscal quarter for a remodel.expenses.
New Store Preopening Costs. In the quarter ended June 25, 2019,30, 2020, we incurred $129,000$31,000 of preopening costs compared to $610,000$129,000 for the quarter ended June 26, 2018.25, 2019. All of the preopening costs are related to our Bad Daddy’s restaurants.
Preopening costs in the current quarter are primarily attributable to $24,000 of non-cash operating lease costs associated with two Bad Daddy’s restaurants that will open in August and September of 2019.where leases have been previously executed. In the prior-year period, pre-opening costs are related to the one Bad Daddy’s restaurant opened during the second fiscal quarter of 20182019 and fourtwo that opened during the third and fourth quartersquarter of fiscal 2018.
2019. Preopening costs typically occur over a period of approximately five months although as a result of the pandemic we expect to incur pre-opening costs for an extended period of time associated with these two future Bad Daddy’s restaurants. Although the exact timing varies by location. Welocation, we typically spend approximately $275,000 to $350,000 per location.location, though these amounts may not accurately reflect preopening costs to be incurred with these two locations.
Depreciation and Amortization Costs. Depreciation and amortization costs for the quarter ended June 25, 2019, increased $167,00030, 2020, decreased $121,000 to $1,104,000$983,000 from $937,000$1,104,000 in the quarter ended June 26, 2018.25, 2019.
Bad Daddy’s depreciation and amortization costs were $863,000 for the quarter ended June 25, 2019 up30, 2020, decreased $93,000 to $770,000 from $698,000$863,000 in the same prior year period.quarter ended June 25, 2019. This increasedecrease was mainlyprimarily attributable to reduced depreciation resulting from asset impairment charges recorded in the sixfourth quarter of fiscal 2019 and the second quarter of fiscal 2020, partially offset by increases due to the four new restaurants opened subsequentin fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020.There were four more Bad Daddy’s restaurants open at the end of the current fiscal quarter compared to the third quarter ofprior year fiscal 2018.quarter.
Good Times depreciation and amortization costs were $241,000 for the quarter ended June 25, 2019 up30, 2020, decreased $28,000 to $213,000 from $239,000$241,000 in the same prior year period.quarter ended June 25, 2019.
General and Administrative Costs. General and administrative costs for the quarter ended June 25, 2019, increased $75,00030, 2020, decreased $374,000 to $2,144,000 (7.3%$1,689,000 (6.9% of total revenue) from $2,069,000 (7.8%$2,063,000 (7.0%) of total revenues) for the quarter ended June 26, 2018.25, 2019.
The $75,000 increase$374,000 decrease in general and administrative expenses in the quarter ended June 25, 201930, 2020 is primarily attributable to:
· |
Decrease in |
· | Increase in |
· | Decrease in |
· |
· | Decrease of |
· | Net |
WeFor the balance of the fiscal year, we expect total general and administrative costs will increase in support of additional Bad Daddy’s restaurants, particularly related to district managementcontinue to decline from fiscal 2019 to fiscal 2020 as we focus on reducing turnover and managerassociated training expenses, however we anticipate such costs will decrease as a percentage of revenue.costs.
Advertising Costs. Advertising costs for the quarter ended June 25, 2019, increased $13,00030, 2020, decreased $253,000 to $666,000 (2.3%$515,000 (2.1% of total revenue) from $653,000 (2.5%$659,000 (2.2% of total revenue) for the quarter ended June 26, 2018. The decline as a percentage of revenues is primarily due to the growth of the Bad Daddy’s segment, which has lower advertising costs as a percentage of revenue compared to the Good Times segment.25, 2019.
Bad Daddy’s advertising costs were $212,000 (1.0%$142,000 (1.1% of total revenue) in the quarter ended June 25, 201930, 2020 compared to $197,000$212,000 (1.1% of total revenue) in the same prior year period. The $15,000 increase wasdecrease is primarily attributabledue to lower sales in the six new restaurants opened subsequent tocurrent quarter versus the end of the third quarter of 2018, partially offset by a reduction in local store marketing.same prior year quarter. The current and prior year quarters include advertising costs of $4,000 of costs associated with franchise advertising contributions.
Good Times advertising costs were $454,000 (5.5% of total revenue) in the quarter ended June 25, 2019 compared to $456,000 (5.6% of total revenue) in the same prior year period. This $2,000 decline is due primarily to reduced contributions to the advertising fund due to the restaurant that closed in April 2018$3,000 and the restaurant that was closed for most of the current quarter for a remodel. The current and prior year quarters include advertising costs of $93,000 and $84,000,$4,000, respectively, of costs associated with franchise advertising contributions.
Bad Daddy’s advertising costs consist primarily of contributions made to the advertising materials fund based on a percentage of restaurant sales as well as local store marketing efforts.
22 |
Good Times advertising costs were $373,000 (4.0% of total revenue) in the quarter ended June 30, 2020 compared to $447,000 (5.5% of total revenue) in the same prior year period. This $74,000 decline is due primarily to reduced contributions made to the regional advertising cooperative. The current and prior year quarters include advertising costs of $64,000 and $87,000, respectively, of costs associated with franchise advertising contributions.
Good Times advertising costs consists primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales which are used to provide television and radio advertising, social media and on-site and point-of-purchase. The percentage contribution paid to the regional advertising cooperative was reduced at the start of the current fiscal year associated with a change in expected media mix. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues. As a percentage of total revenue, we expect advertising costs to remain relatively stable at approximately 5.5%4.0% of total revenue for the Good Times segment.
Franchise Costs. Franchise costs were $8,000$6,000 and $11,000$8,000 for the quarters ended June 25, 201930, 2020 and June 26, 2018,25, 2019, respectively. The costs are primarily related to the Good Times franchised restaurants. We currently have minimal direct costs associated with maintaining our franchise systems as those employees overseeing franchisee relations primarily perform responsibilities associated with company operations
Gain/Loss (gain) on Restaurant Asset Disposals. The lossgain on restaurant asset disposals for the quarter ended June 25, 201930, 2020 was $44,000$8,000 compared to a gainloss on restaurant asset disposals of $9,000$44,000 for the quarter ended June 26, 2018.25, 2019.
The gain in the current year is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The loss in the currentprior year quarter is primarily associated with the write down of assets no longer in use, offset by deferred gains on previous sale lease-back transactions on two Good Times restaurants.
Impairment Costs: Impairment costs were $932,000 and $0 for the quarters ended June 30, 2020 and June 25, 2019, respectively. The gaincosts in the prior period iscurrent quarter are related to deferred gains on previous sale lease-back transactions on two Good Times restaurants.one Bad Daddy’s restaurants’ assets that were impaired.
Income from Operations. IncomeThe income from operations was $843,000 in the quarter ended June 30, 2020 compared to $1,076,000 in the quarter ended June 25, 2019 compared to income from operations of $781,000 in the quarter ended June 26, 2018.2019.
The change in incomethe income/loss from operations for the quarter wasended June 30, 2020 is due primarily due to matters discussed in the "Net Revenues”,Revenues,” "Restaurant Operating Costs", “Asset Impairment Costs” andCosts," "General and Administrative Costs"Costs," “Advertising Costs” and “Asset Impairment Costs” sections above.
Net Income. Net income was $873,000$641,000 for the quarter ended June 25, 201930, 2020 compared to net income of $685,000$873,000 in the quarter ended June 26, 2018.25, 2019.
The change in net income forfrom the quarter ended June 30, 2020 to the quarter ended June 25, 2019 was primarily attributable to the matters discussed in the "Net Revenues",Revenues," "Restaurant Operating Costs",Costs," "General and Administrative Costs," “Advertising Costs” and “Asset Impairment Costs” and "General and Administrative Costs", as well as an increase in net interest expense of $106,000 for the current quarter, compared to the same prior year period.sections above.
Income Attributable to Non-Controlling Interests.The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s joint venturejoint-venture restaurants.
For the quarter ended June 25, 2019,30, 2020, the income attributable to non-controlling interests was $333,000$352,000 compared to $381,000$333,000 for the quarter ended June 26, 2018.25, 2019.
Current quarter$74,000 of the current quarter’s income of $186,000 is attributable to non-controlling partners in the BDI joint-venture restaurants, compared to $238,000$186,000 in the same prior year period. This $112,000 decrease is primarily due to the elimination of non-controlling interest beginningreduced restaurant level profitability in the secondcurrent fiscal quarter associated withquarter. $278,000 of the repurchase of interests in the three Raleigh area restaurants offset by an increase in joint venture store operating weeks due to two new joint venture restaurants opened during the final quarter of fiscal 2018. Current quartercurrent quarter’s income of $147,000 is attributable to non-controlling partners in the Good Times joint-venture restaurants, compared to $143,000$147,000 in the same prior year period.
Fiscal three quarters ended June 25, 201930, 2020 compared to the fiscal three quarters ended June 26, 2018:25, 2019:
Net Revenues.Net revenues for the three quarters ended June 25, 2019 increased $9,292,00030, 2020 decreased $629,000 or 12.8%0.8% to $81,999,000$81,353,000 from $72,707,000$81,982,000 for the quarter ended June 26, 2018. Bad Daddy’s concept revenues increased $11,011,000 while our Good Times concept revenues decreased $1,719,000.
Bad Daddy’s restaurant sales increased $11,008,000 to $59,714,000 for the three quarters ended June 25, 2019 from $48,706,000 for the three quarters ended June 26, 2018, primarily attributable to the nine new restaurants opened in fiscal 2018 and two new restaurant opened in the three quarters ended June 25, 2019. Bad Daddy’s concept revenues decreased $2,797,000 while our Good Times concept revenues increased $2,168,000.
Bad Daddy’s restaurant sales decreased $2,686,000 to $57,028,000 for the three quarters ended June 30, 2020 from $59,714,000 for the three quarters ended June 25, 2019. Sales were positively impacted by four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020 and the impact of the 53rd week of the fiscal year, offset by the negative impact of our dining room closures due to the COVID-19 pandemic. We estimate the impact of the extra week of sales in the first fiscal quarter of 2020 to be approximately $2,015,000. Bad Daddy’s same store restaurant sales increased 0.2%decreased 19.6% during the three quarters ended June 25, 201930, 2020 compared to the same prior-year period.three quarters, substantially driven by decreases between March and May when dining rooms were closed, and to a lesser extend in June when dining rooms were open but at reduced capacity. Bad Daddy’s restaurants are included in same store sales after they have been open a full eighteen months. Comparable sales are calculated excluding weeks during which restaurants are closed for major remodels. The average menu price increase for the three quarters ended June 25, 201930, 2020 over the same prior-year periodthree quarters was approximately 2.2%2.9%. There were twenty-fourthirty-two restaurants included in the same store sales base at the end of the quarter. Additionally, net revenues were reduced by $110,000 in lower franchise royalties and license fees compared to the prior-year three quarters, primarily related to the Charlotte Airport licensee. Franchise revenues in the current and prior year quarters include franchisee advertising contributions of $9,000 and $11,000, respectively.
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Good Times restaurant sales increased $3,000$2,186,000 to $23,753,000 for the three quarters ended June 25, 2019 compared to the same prior-year period. The current and prior year periods include franchise advertising contributions of $11,000 and $12,000, respectively.
Good Times restaurant sales decreased $1,656,000 to30, 2020 from $21,567,000 for the three quarters ended June 25, 2019 from $23,223,000 for the three quarters ended June 26, 2018.2019. Good Times same store restaurant sales decreased 3.1%increased 7.2% during the three quarters ended June 25, 201930, 2020 compared to the same prior-year period. Good Times sales were negatively affectedthree quarters and benefitted from an extra operating week in the first two fiscal quarters of 2019 by abnormally cold and wet weather in Colorado. To align Good Times’ same store sales calculations with same store sales calculations for Bad Daddy’s, beginning in fiscal 2018 Good Times restaurants are included in the same store sales calculation after they have been open a full eighteen months. Restaurant sales decreased $636,000 due to two restaurants that were closed in January and April of 2018, restaurant sales also decreased $287,000 due to one restaurant that was closed for most of the third fiscal quarter for a remodel.of 2020 which we estimate contributed approximately $460,000. The average menu price increase for the three quarters ended June 25, 201930, 2020 over the same prior-year periodthree quarters was approximately 3.5%5.8%. Franchise revenues decreased $41,000$18,000 for the three quarters ended June 25, 2019,30, 2020, compared to the same prior year period, primarily due to one franchise location that closed in September 2018 and one location that was temporarily closed due to a fire that occurred in April 2018,period. Franchise revenues for the restaurant subsequently reopened in March 2019. The current and prior year quarters include franchisefranchisee advertising contributions of $228,000$167,000 and $251,000,$212,000, respectively.
Restaurant Operating Costs
Food and Packaging Costs. Food and packaging costs for the three quarters ended June 25, 2019 increased $1,801,00030, 2020 decreased $579,000 to $23,955,000 (29.5%$23,376,000 (28.9% of restaurant sales) from $22,154,000 (30.8%$23,955,000 (29.5% of restaurant sales) for the three quarters ended June 26, 2018. This increase is primarily due to a greater number of operating restaurants during the current period versus the same period in the prior year.25, 2019.
Bad Daddy’s food and packaging costs were $16,108,000 (28.2% of restaurant sales) for the three quarters ended June 30, 2020, down from $17,136,000 (28.7% of restaurant sales) for the three quarters ended June 25, 2019, up2019. This decrease is primarily attributable to lower restaurant sales during the current three quarters versus the same three quarters in the prior year. The decrease as a percent of sales is attributable to menu mix shift from $14,539,000 (29.9%a limited menu during the ongoing COVID-19 pandemic, improved cost on soft beverage because refills are not available on off-premise sales, reduced discounting due to the reduction in on-premises sales, and increased pricing charged on sales through third-party delivery services, typically at a 10% to 20% premium to purchases made in-store or through our online ordering system. Purchase prices generally increased on beef and bacon throughout the three quarters, but generally decreased on chicken, on a year-over-year basis.
Good Times food and packaging costs were $7,268,000 (30.6% of restaurant sales) for the three quarters ended June 26, 2018. This increase is primarily due to a greater number of operating restaurants during the current period versus the same period in the prior year. The decline as a percent of sales is primarily due to a combination of higher menu prices, combined with lower costs of proteins, primarily beef.
Good Times food and packaging costs were30, 2020, up from $6,819,000 (31.6% of restaurant sales) for the three quarters ended June 25, 2019, down from $7,615,000 (32.8%the result of restaurant sales) for the three quarters ended June 26, 2018. In additionincreased sales. This decrease as a percent of sales is due primarily to the factors affecting the quarter ending June 25, 2019, current year foodimpact of higher menu pricing and packaging costs at Good Times were favorably affected by the increased discounting of kid’s meals that was in place during the first quarter of fiscal 2018.menu engineering, which offset purchase price increases on our primary ingredients.
Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the three quarters ended June 25, 2019 increased $4,382,00030, 2020 decreased $1,376,000 to $30,458,000 (37.5%$29,082,000 (36.0% of restaurant sales) from $26,076,000 (36.3%$30,458,000 (37.5% of restaurant sales) for the three quarters ended June 26, 2018.25, 2019.
Bad Daddy’s payroll and other employee benefit costs were $22,502,000 (37.7%$20,973,000 (36.8% of restaurant sales) for the three quarters ended June 25, 2019 up30, 2020 down from $18,002,000 (37.0%$22,502,000 (37.7% of restaurant sales) in the same prior year period. The $4,500,000 increase was$1,529,000 decrease is the result of lower restaurant sales during the current three quarters versus the same three quarters in the prior year, primarily attributable to staffing reductions associated with the nine new restaurants opened during fiscal 2018 and two new restaurants opened duringclosure of our dining rooms for much of the three quarters ended June 25, 2019.third quarter as well as reductions in management staffing. As a percent of sales, payroll and employee benefits costs increaseddecreased by 0.7%0.9%, compared to the resultsame prior year period, primarily driven by reduced overall staffing during the third fiscal quarter of increased wages for back of house staff in all states due to a competitive market for workers and statutory wage increases for front-of-house employees in Colorado, which in total exceeded the impact of our year-over-year menu price increases.2020.
Good Times payroll and other employee benefit costs were $7,956,000 (36.9%$8,109,000 (34.1% of restaurant sales) in the three quarters ended June 25, 2019, down30, 2020, up from $8,074,000 (34.8%$7,956,000 (36.9% of restaurant sales) in the same prior yearprior-year period. Payroll and other employee benefit costs decreased $335,000 fromThe $153,000 increase was primarily attributable to the same prior-year quarters due two stores that were closed in January and April of 2018 and one store that was closed for most of the third fiscal quarter for a remodel. The decrease was offset by an increase in payroll and other employee benefit costs of $217,000 primarily duesame store sales as well as an increase to the average wage paid to our employees. As a percent of sales, payroll and employee benefits costs decreased by 2.8%, compared to the same prior year period, primarily attributable to the leveraging impact of the significant sales increases in the third fiscal quarter of 2020. The average wage paid to our employees increased approximately 10.5%6.7% in the three quarters ended June 25, 201930, 2020 compared to the same prior year period. This average wage increase is attributable to a very competitive labor market in Colorado and statutory increases in the minimum wage rate.rate, particularly during the first two quarters of the year.
Occupancy Costs. Occupancy costs for the three quarters ended June 25, 201930, 2020 increased $943,000$518,000 to $6,221,000 (7.7%$6,739,000 (8.3% of restaurant sales) from $5,278,000 (7.3% of restaurant sales) for the three quarters ended June 26, 2018.
Bad Daddy’s occupancy costs were $4,022,000 (6.7%$6,221,000 (7.7% of restaurant sales) for the three quarters ended June 25, 20192019.
Bad Daddy’s occupancy costs were $4,600,000 (8.1% of restaurant sales) for the three quarters ended June 30, 2020 up from $3,114,000 (6.4%$4,022,000 (6.7% of restaurant sales) in the same prior year period. The $908,000$578,000 increase was primarily attributable to the ninefour new restaurants opened in fiscal 20182019 and two new restaurants opened in the three quarters ended June 25, 2019.first fiscal quarter of 2020, offset by rent abatements of approximately $85,000 granted by various landlords in the third fiscal quarter of 2020 due to the COVID-19 pandemic The increase as a percentage of sales was due to general increases in our operating lease costs as well as the deleveraging effect of lower restaurant sales.
Good Times occupancy costs were $2,199,000 (10.2%$2,139,000 (9.0% of restaurant sales) in the three quarters ended June 25, 2019, up30, 2020, down from $2,164,000 (9.3%$2,199,000 (10.2% of restaurant sales) in the same prior year period. The $35,000 increasedecrease was primarily attributable to an increaserent abatements of approximately $69,000 granted by various landlords in property taxes and common area costs compared to the same prior year period, and the increase as a percentagethird fiscal quarter of sales is2020 due to the deleveraging impact of lower average unit volumes.COVID-19 pandemic, as well as other decreases in our operating lease costs and property taxes.
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Other Operating Costs. Other operating costs for the three quarters ended June 25, 2019,30, 2020, increased $1,775,000$965,000 to $8,401,000 (10.3%$9,673,000 (12.0% of restaurant sales) from $6,626,000 (9.2% of restaurant sales) for the three quarters ended June 26, 2018.
Bad Daddy’s other operating costs were $6,560,000 (11.0%$8,738,000 (10.7% of restaurant sales) for the three quarters ended June 25, 20192019.
Bad Daddy’s other operating costs were $7,549,000 (13.2% of restaurant sales) for the three quarters ended June 30, 2020 up from $4,735,000 (9.7%$6,770,000 (11.3% of restaurant sales) in the same prior year period. The $1,825,000$779,000 increase was primarilypartially attributable to the ninefour new restaurants opened in fiscal 20182019 and two new restaurants opened in the three quarters ended June 25, 2019.first fiscal quarter of 2020 as well as an increase of $826,000 in commissions paid to delivery service providers. The percentage increase was primarily attributable to higher coststhe deleveraging impact of general restaurant supplieslower overall sales and approximately $484,000the a significant shift in delivery sales as a percentage of increased commissions paidoverall sales, as customers migrated to delivery service providers induring the current year whichfirst two months of the COVID-19 pandemic and dining rooms were not incurred in the prior year.generally closed.
Good Times other operating costs were $1,841,000 (8.5%$2,124,000 (8.9% of restaurant sales) in the three quarters ended June 25, 2019, down30, 2020, up from $1,891,000 (8.2%$1,938,000 (9.0% of restaurant sales) in the same prior year period. The decreaseincrease was primarily attributable to the two restaurants that closedan approximate $182,000 increase in 2018. The increase as a percentage of sales is duecommissions paid to the deleveraging impact of lower average unit volumes.delivery service providers.
New Store Preopening Costs. In the three quarters ended June 25, 2019,30, 2020, we incurred $949,000$992,000 of preopening costs compared to $1,683,000$949,000 for the three quarters ended June 26, 2018.25, 2019. All of the preopening costs are related to our Bad Daddy’s restaurants.
Preopening costs in the current three quarters ended June 25, 2019 are primarily attributable to four restaurants: two that opened late during the fourth quarter of fiscal 2019, and two restaurants that opened betweenduring the finalfirst fiscal quarter of 2018 and third fiscal quarter2020. In addition, the current three quarters includes approximately $132,000 of 2019 as well as tonon-cash operating lease costs associated with two future Bad Daddy’s restaurants, that will open later in fiscal 2019. In the prior-year period, pre-opening costs are related to the sevenone Bad Daddy’s restaurantsrestaurant opened betweenduring the firstsecond fiscal quarter of 2019, and two that opened during the fourth quarter of fiscal quarters of 2018.
2019. Preopening costs typically occur over a period of approximately five months, althoughmonths. Although the exact timing varies by location. Welocation, we typically spend approximately $275,000 to $350,000 per location.
Depreciation and Amortization Costs. Depreciation and amortization costs for the three quarters ended June 25, 2019, increased $562,00030, 2020, decreased $52,000 to $3,227,000$3,175,000 from $2,665,000 in the three quarters ended June 26, 2018.
Bad Daddy’s depreciation and amortization costs were $2,542,000 for the three quarters ended June 25, 2019 up from $1,973,000 in the same prior year period. This increase was mainly attributable to the nine new restaurants opened in fiscal 2018 and two new restaurants opened$3,227,000 in the three quarters ended June 25, 2019.
Bad Daddy’s depreciation and amortization costs for the three quarters ended June 30, 2020, decreased $7,000 to $2,535,000 from $2,542,000 in the three quarters ended June 25, 2019. This decrease was attributable to reduced depreciation resulting from asset impairment charges recorded in the fourth quarter of fiscal 2019 and the second quarter of fiscal 2020, offset by the four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020.. There were four more Bad Daddy’s restaurants open at the end of the current fiscal quarter compared to the prior year fiscal quarter.
Good Times depreciation and amortization costs were $685,000 for the three quarters ended June 25, 2019 down30, 2020, decreased $45,000 to $640,000 from $692,000$685,000 in the same prior year period.three quarters ended June 25, 2019.
General and Administrative Costs. General and administrative costs for the three quarters ended June 25, 2019, increased $514,00030, 2020, decreased $553,000 to $6,398,000 (7.8%$5,538,000 (6.8% of total revenue) from $5,884,000 (8.1%$6,091,000 (7.4%) of total revenues) for the three quarters ended June 26, 2018.25, 2019.
The $514,000 increase$553,000 decrease in general and administrative expenses in the three quarters ended June 25, 201930, 2020 is primarily attributable to:
· |
· | Decrease in |
· |
· | Increase in |
· | Decrease of $108,000 in |
· | Net |
WeFor the balance of the fiscal year, we expect total general and administrative costs will increase in support of additional Bad Daddy’s restaurants, particularly related to district managementcontinue to decline slightly from fiscal 2019 to fiscal 2020 as we focus on reducing turnover and managerassociated training expenses, however we anticipate such costs will decrease as a percentage of revenue.costs.
Advertising Costs. Advertising costs for the three quarters ended June 25, 2019,30, 2020, decreased $9,000$253,000 to $1,841,000 (2.2%$1,571,000 (1.9% of total revenue) from $1,850,000 (2.5%$1,824,000 (2.2% of total revenue) for the three quarters ended June 26, 2018. The decline as a percentage of revenues is primarily due to the growth of the Bad Daddy’s segment, which has lower advertising costs as a percentage of revenue compared to the Good Times segment.25, 2019.
Bad Daddy’s advertising costs were $654,000$617,000 (1.1% of total revenue) in the three quarters ended June 25, 201930, 2020 compared to $538,000$654,000 (1.1% of total revenue) in the same prior year period. The $116,000 increase wasdecrease is primarily attributabledue to lower sales in the nine new restaurants opened during the finalcurrent three quarters ofversus the same prior year period, the decrease was offset by $52,000 in costs incurred in the second fiscal 2018 and first two fiscal quarters of 2019, as well asquarter related to a media buy duringlocal radio advertising campaign in the first quarter of fiscal 2019 in Colorado that was not covered by the ad fund contributions.Charlotte, North Carolina area The current and prior year three quarters include advertising costs of $11,000$9,000 and $12,000, respectively, of costs associated with franchise advertising contributions.
Good Times advertising costs were $1,187,000 (5.4% of total revenue) in the three quarters ended June 25, 2019 compared to $1,312,000 (5.5% of total revenue) in the same prior year period. This $125,000 decline is due primarily to reduced contributions to the advertising fund due to the two restaurants that closed during fiscal 2018 and lower sales among existing company- and franchisee-owned restaurants. The current and prior year quarters include advertising costs of $228,000 and $251,000,$11,000, respectively, of costs associated with franchise advertising contributions.
Bad Daddy’s advertising costs consist primarily of contributions made to the advertising materials fund based on a percentage of restaurant sales as well as local store marketing efforts.
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Good Times advertising costs were $954,000 (3.9% of total revenue) in the three quarters ended June 30, 2020 compared to $1,170,000 (5.3% of total revenue) in the same prior year period. This $216,000 decline is due primarily to reduced contributions made to the regional advertising cooperative. The current and prior year quarters include advertising costs of $167,000 and $212,000, respectively, of costs associated with franchise advertising contributions.
Good Times advertising costs consists primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales which are used to provide television and radio advertising, social media and on-site and point-of-purchase. The percentage contribution paid to the regional advertising cooperative was reduced at the start of the current fiscal year associated with a change in expected media mix. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues. As a percentage of total revenue, we expect advertising costs to remain relatively stable at approximately 5.5%3.9% of total revenue for the Good Times segment.
Franchise Costs. Franchise costs were $31,000$14,000 and $32,000$31,000 for the three quarters ended June 25, 201930, 2020 and June 26, 2018,25, 2019, respectively. The costs are primarily related to the Good Times franchised restaurants. We currently have minimal direct costs associated with maintaining our franchise systems as those employees overseeing franchisee relations primarily perform responsibilities associated with company operations
Asset impairment costs.There were no asset impairment costs for the three quarters ended June 25, 2019 and asset impairment costs were $72,000 for the three quarters ended June 26, 2018. The costs are related to a Good Times restaurant that was closed and subleased in April 2018, as described in Note 9 to the financial statements.
Gain/Loss (gain) on Restaurant Asset Disposals. The lossgain on restaurant asset disposals for the three quarters ended June 25, 201930, 2020 was $5,000$36,000 compared to a gainloss of $26,000$5,000 in the three quarters ended June 26, 2018. The loss25, 2019.
$28,000 of $5,000the gain in the current period is comprised of: 1) a $27,000 deferred gain related to previous sale lease-back transactions on two Good Times restaurants, 2) a gain of $21,000 related to insurance claim reimbursements where assets were destroyed, offset by 3) a $53,000 loss associated with the write down of assets no longer in use. The gain of $26,000 in the prior year period is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The additional gain of $8,000 in the current year is related to the sale of miscellaneous restaurant equipment. The loss in the prior year quarter is primarily associated with the write down of assets no longer in use, offset by deferred gains on previous sale lease-back transactions on two Good Times restaurants.
IncomeImpairment Costs: Impairment costs were $15,291,000 and $0 for the three quarters ended June 30, 2020 and June 25, 2019, respectively. $5,291,000 of the costs in the current three quarters are related to six Bad Daddy’s restaurants’ assets that were impaired and $10,000,000 is attributable to an impairment of goodwill related to our Bad Daddy’s reporting unit.
Loss from Operations. IncomeThe loss from operations was $14,062,000 in the three quarters ended June 30, 2020 compared to a loss of $513,000 in the three quarters ended June 25, 20192019.
The change in the loss from operations for the three quarters ended June 30, 2020 is due primarily due to matters discussed in the "Net Revenues,” "Restaurant Operating Costs," "General and Administrative Costs," “Advertising Costs” and “Asset Impairment Costs” sections above.
Net Loss. The net loss was $14,700,000 for the three quarters ended June 30, 2020 compared to income from operationsa net loss of $413,000$49,000 in the three quarters ended June 26, 2018.25, 2019.
The change in income from operations for the quarter and year-to-date was due primarilythree quarters ended June 30, 2020 to matters discussed in the "Net Revenues”, "Restaurant Operating Costs", “Asset Impairment Costs” and "General and Administrative Costs" sections above.
Net Income (loss). The net loss was $49,000 for the three quarters ended June 25, 2019 compared to net income of $143,000 in the three quarters ended June 26, 2018.
The change in net income (loss) for the three quarters was primarily attributable to the matters discussed in the "Net Revenues",Revenues," "Restaurant Operating Costs",Costs," "General and Administrative Costs," “Advertising Costs” and “Asset Impairment Costs” and "General and Administrative Costs",sections above as well as an increase in net interest expense $291,000of $77,000 for the three quarters ended June 26, 2018,30, 2020 compared to the same prior year period.
Income Attributable to Non-Controlling Interests.The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s joint venturejoint-venture restaurants.
For the three quarters ended June 25, 2019,30, 2020, the income attributable to non-controlling interests was $912,000$738,000 compared to $853,000$912,000 for the three quarters ended June 26, 2018.25, 2019.
Income for$319,000 of the current three quarters of $671,000quarters’ income is attributable to non-controlling partners in the BDI joint-venture restaurants, compared to $556,000$671,000 in the same prior year period. This $115,000 increase$352,000 decrease is primarily due to an increase in joint venture store operating weeks due to two new joint venture restaurants opened during the final quarter of fiscal 2018, offset by the elimination of non-controlling interestinterests beginning in the second fiscal quarter of 2019 associated with the repurchase of interests associated within the three Raleigh area restaurants. Income forrestaurants as well as reduced restaurant level profitability in the third fiscal quarter of 2020. $419,000 of the current three quarters of $241,000quarters’ income is attributable to the non-controlling partners in the Good Times joint-venture restaurants, compared to $297,000$241,000 in the same prior year period. This decline$178,000 increase is primarily due to increased restaurant level profitability in the reduction in profitabilitythird fiscal quarter of the seven co-developed Good Times restaurants.2020.
Adjusted EBITDA
EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.
Adjusted EBITDA is defined as EBITDA plus non-cash stock-based compensation expense, preopening expense, non-recurring acquisition costs, GAAP rent in excess of cash rent, and non-cash disposal of assets. Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by or presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses EBITDA and Adjusted EBITDA (i) as a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.
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We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's financial measures with other fast casual restaurants, which may present similar non-GAAP financial measures to investors. In addition, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.
Our management does not consider EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of EBITDA and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are:
· | Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
· | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
· | Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; |
· | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; |
· | stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing performance for a particular period; |
· | Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and |
· | other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplemental measure. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net income/loss to EBITDA and Adjusted EBITDA (in thousands)for the third fiscal second quarter and year-to-date periods:year-to-date:
Quarter Ended | Year-to-Date | Quarter Ended | Year-to-Date | |||||||||||||||||||||||||||||
June 25, 2019 | June 26, 2018 | June 25, 2019 | June 26, 2018 | June 30, 2020 (13 Weeks) | June 25, 2019 (13 Weeks) | June 30, 2020 (40 Weeks) | June 25, 2019 (39 Weeks) | |||||||||||||||||||||||||
Adjusted EBITDA: | ||||||||||||||||||||||||||||||||
Net income (loss), as reported | $ | 540 | $ | 304 | $ | (961 | ) | $ | (710 | ) | $ | 289 | $ | 540 | $ | (15,438 | ) | $ | (961 | ) | ||||||||||||
Depreciation and amortization | 1,096 | �� | 897 | 3,157 | 2,550 | 968 | 1,096 | 3,140 | 3,157 | |||||||||||||||||||||||
Interest expense, net | 202 | 97 | 561 | 272 | 202 | 202 | 638 | 561 | ||||||||||||||||||||||||
EBITDA | 1,838 | 1,298 | 2,757 | 2,112 | 1,459 | 1,838 | (11,660 | ) | 2,757 | |||||||||||||||||||||||
Preopening expense | 128 | 565 | 928 | 1,541 | 31 | 128 | 992 | 928 | ||||||||||||||||||||||||
Non-cash stock-based compensation | 110 | 88 | 331 | 303 | 74 | 110 | 223 | 331 | ||||||||||||||||||||||||
GAAP rent-cash rent difference | (44 | ) | (35 | ) | (50 | ) | (51 | ) | ||||||||||||||||||||||||
Gain on disposal of assets | 44 | (9 | ) | 5 | (26 | ) | ||||||||||||||||||||||||||
Non-recurring severance costs | - | - | 41 | - | ||||||||||||||||||||||||||||
GAAP rent-cash cash difference | (95 | ) | (44 | ) | (118 | ) | (50 | ) | ||||||||||||||||||||||||
Gain (loss) on disposal of assets | (8 | ) | 44 | (36 | ) | 5 | ||||||||||||||||||||||||||
Asset impairment charge | - | - | - | 72 | 932 | - | 15,291 | - | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 2,076 | $ | 1,907 | $ | 3,971 | $ | 3,951 | $ | 2,393 | $ | 2,076 | $ | 4,733 | $ | 3,971 |
Liquidity and Capital Resources
Cash and Working Capital
As of June 25, 2019,30, 2020, we had a working capital deficit of $3,241,000.$1,738,000, Our working capital position additionally benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within a few days of the related sale, and we typically have two to four weeks to pay our vendors. The working capital deficit may increase when new Bad Daddy’s and Good Times restaurants are opened. We believe that with our ability to access the Cadence Bank credit facility in addition to cash flow generated from our existing restaurants, that we will have sufficient capital to meet our working capital, long term debt obligations and recurring capital expenditure needs infor the remainder of fiscal 2019.2020 and 2021, although if we are required to shut down dining rooms or full restaurants due to COVID-19-driven government restrictions, we may need to seek additional sources of liquidity. As of June 25, 2019,30, 2020, we had $1,487,000 of$354,000 in commitments outstanding related to construction contracts for foura Bad Daddy’s restaurants currentlyrestaurant that was under development.construction at the outset of the pandemic, but which has been halted due to the uncertainty created by COVID-19.
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Consistent with many other restaurant and retail store operations, we typically use operating lease arrangements for our restaurants. We believe that our operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. Effective September 25, 2019, the first day of fiscal year 2020, our existing lease obligations are reflected in our consolidated balance sheets as operating lease assets and lease liabilities in accordance with Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)". See Note 2, Updates to Significant Accounting Policies and Note 11, Leases, in the notes to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for more information.
Financing
Cadence Credit Facility
The Company maintains a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $17,000,000 with a maturity date of December 31, 2021 (the “Cadence Credit Facility”). On February 21, 2019, the Cadence Credit Facility was amended, in connection with the RGWP Repurchase,repurchase of minority interests related to three Bad Daddy’s restaurants, to retroactively attribute EBITDA previously attributed to non-controlling interests to the Company for purposes of certain financial covenants. On December 9, 2019, the Cadence Credit Facility was amended in connection with the separation of the Company’s former CEO, to amend the definition of “Consolidated EBITDA” for the purposes of financial covenants, to require certain installment payments, and to permit the company to make “Restricted Payments” (as defined in the Cadence Credit Facility) in the form of repurchases or redemptions of certain equity interests of the Company from former directors and officers of the Company in an aggregate amount not to exceed $100,000. 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%. All 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. As of June 25, 2019,30, 2020, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 5.9228%3.73%.
As a result of entering into the Cadence Credit Facility and various amendments, the Company has paid loan origination costs including professional fees of approximately $292,000 since the inception of the credit facility 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 June 30, 2020, the outstanding balance on borrowings against the facility was $9,900,000. 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 June 30, 2020, the outstanding face value of such letters of credit was $157,500.
Principal payments on the Cadence Credit Facility are required beginning on June 30, 2020 in $250,000 installments on the last business day each of March, June, September, and December in each calendar year. The total loan commitment is permanently reduced by the corresponding amount of each such repayment on such date. New borrowings are permitted up to the amount of the loan commitment. The note matures and is due in its entirety on December 31, 2021.
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 5.35:1, a minimum fixed charge coverage ratio of 1.25:1 and minimum liquidity of $2,000,000. As of June 25, 2019,30, 2020, the Company was in compliance with theall covenants under the Cadence Credit Facility.
AsOn April 14, 2020, the Company entered into a Consent and Forbearance Agreement effective March 31, 2020 (the “Forbearance Agreement”) with respect to the Cadence Credit Facility. The Company informed Cadence that certain events of default may occur as a result of entering intoCompany’s failure to comply with certain financial covenants for the Cadence Credit Facility andfiscal quarter ended on or about March 31, 2020 (collectively, the various amendments,“Potential Events of Default”). Pursuant to the Company paid loan origination costs including professional fees of approximately $232,000 and is amortizing these costs over the termterms of the credit agreement.
The obligationsForbearance Agreement, during the Forbearance Period (as defined below), Cadence agreed to forbear from exercising any available rights and remedies under the Cadence Credit Facility are collateralized byto the extent such rights and remedies arise exclusively as a first-priority lienresult of the Potential Events of Default. Further, Cadence agreed to consent to the Company’s request to defer the principal payment (the “Payment Deferral”) on substantiallythe loans due on June 30, 2020 until the maturity date. The forbearance period (the “Forbearance Period”) expired at 11:59 p.m. (Eastern time) on June 30, 2020 and the Company is currently in compliance with all of the Company’s assets.its financial covenants.
As
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Paycheck Protection Program Loans
On May 7, 2020, Good Times Restaurants Inc., and three of June 25, 2019,its wholly-owned subsidiaries, BDI, Drive Thru, and BDC (each a “Borrower”), entered into unsecured loans in the outstanding balance on borrowings againstaggregate principal amount of $11,645,000 (the “Loans”) with Cadence Bank, N.A. (the “Lender”) pursuant to the facility was $11,150,000. AvailabilityPaycheck Protection Program (the “PPP”), which is sponsored by the Small Business Administration (the “SBA”). The PPP is part of the Cadence Credit Facility for borrowings is reducedCoronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
The Loans are evidenced by individual promissory notes of each of the Borrowers dated April 29, 2020 executed by each Borrower on May 7, 2020 (together, the “Notes”) in favor of the Lender which Notes bear interest at the rate of 1.00% per annum. All or a portion of the Loans may be forgiven by the outstanding face valueSBA upon application by the Borrowers accompanied by documentation of any letters of credit issuedexpenditures in accordance with SBA requirements under the facility. AsPPP, which includes employees being kept on the payroll for twenty-four weeks after the date of June 25, 2019, the outstanding face valueLoans and the proceeds of such lettersLoans being used for payroll, rent, mortgage interest or utilities. Congress subsequently passed the PPP Flexibility Act which modified certain provisions of credit was $157,500.the PPP program, including expanding the original eight-week covered period to a period of twenty-four weeks. The SBA and the Treasury continue to develop and issue new and updated guidance regarding the PPP loan application process, including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the PPP. The Company continues to track the guidance as it is released and assess and re-assess various aspects of its application as necessary based on the guidance. The Company believes it qualifies for the PPP and is compliant in all aspects with its use of PPP funds. However, in the absence of final guidance or regulations the Company cannot give any assurance that the Loans will be forgivable in whole or in part.
In the event that any portion of the Loans are not forgiven in accordance with the PPP, following a deferral period that ends November 2, 2020, the Company will be required to pay the Lender monthly payments of principal and interest in an aggregate amount of $489,000 to repay the PPP Loans in full on or before April 29, 2022. The Loans may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Notes contain certifications and agreements related to the PPP, as well as customary default and other provisions. We reflect the full principal amount of the PPP loans as debt, accounting for such loans under ASC 470, with current maturities of approximately $3.8 million. We intend to account for the forgiveness of such loans at the time such forgiveness is granted.
Capital Expenditures
Planned capital expenditures for the balance of fiscal 20192020 primarily include normal recurring capital expenditures for existing Good Times and Bad Daddy’s restaurants and new Bad Daddy’s restaurants.
Assets Held for Sale
None.
Cash Flows
Net cash provided by operating activities was $4,388,000 for the three quarters ended June 30, 2020. The net cash provided by operating activities for the three quarters ended June 30, 2020 was the result of a net loss of $14,700,000 as well as cash and non-cash reconciling items totaling $19,088,000 (these reconciling items are comprised of 1) depreciation and amortization of general assets of $3,311,000, 2) amortization of operating lease assets of $3,100,000, 3) stock-based compensation expense of $223,000, 4) impairment costs of 15,291,000 5) an increase in receivables and other assets of $840,000, 6) an increase in deferred liabilities and accrued expenses of $346,000 , 7) an increase in accounts payable of $47,000 and 8) a net increase in amounts related to our operating leases of $2,392,000.
Net cash provided by operating activities was $4,402,000 for the three quarters ended June 25, 2019. The net cash provided by operating activities for the three quarters ended June 25, 2019 was the result of a net loss of $49,000 as well as cash and non-cash reconciling items totaling $4,451,000 (these reconciling items are comprised of 1) depreciation and amortization of $3,417,000, 2) accretion of deferred rent of $429,000, 3) amortization of lease incentive obligations of $374,000, 4) stock-based compensation expense of $331,000, 5) a decrease in receivables and other assets of $1,381,000, 6) an increase in deferred liabilities related to tenant allowances of $368,000, 7) an increase in accounts payable of $367,000, 8) an increase in prepaids and other assets of $356,000, 9) a decrease in accrued liabilities of $1,023,000 and 10) a net decrease in other operating assets and liabilities of $89,000).
Net cash provided by operating activities was $4,627,000 for the three quarters ended June 26, 2018. The net cash provided by operatingused in investing activities for the three quarters ended June 27, 201730, 2020 was $2,305,000 which primarily reflects the resultpurchases of net incomeproperty and equipment of $143,000 as well as cash$2,294,000, proceeds from the sale of fixed assets of $55,000 and non-cash reconciling items totaling $4,484,000 (comprisedthe purchase of 1) depreciationtreasury stock of $75,000. Purchases of property and amortizationequipment is comprised of $2,849,000, 2) accretion of deferred rent of $414,000, 3) amortization of lease incentive obligations of $313,000, 4) stock-based compensation expense of $303,000, 5) Non-cash asset impairment costs of $72,000, 6) an increase in receivables of $128,000, 7) an increase in deferred liabilities related to tenant allowances of $1,258,000, 8) an increase in accounts payable of $194,000, 8) an decrease in accrued liabilities of $21,000 and 9) a net decrease in other operating assets and liabilities of $144,000).the following:
· | $2,065,000 in costs for the development of Bad Daddy’s locations |
· | $106,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants |
· | $90,000 for miscellaneous capital expenditures related to our Good Times restaurants |
· | $33,000 for miscellaneous capital expenditures related to our corporate office |
Net cash used in investing activities for the three quarters ended June 25, 2019 was $7,700,000 which primarily reflects the purchases of property and equipment of $4,716,000 and the purchase of non-controlling interests of $3,009,000. Purchases of property and equipment is comprised primarily of the following:
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· | $3,438,000 in costs for the development of Bad Daddy’s locations |
· | $290,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants |
· | $705,000 for remodel and reimaging related to our Good Times restaurants |
· | $226,000 for miscellaneous capital expenditures related to our Good Times restaurants |
· | $57,000 for miscellaneous capital expenditures for our corporate office |
Net cash used in investingprovided by financing activities for the three quarters ended June 26, 201830, 2020 was $5,153,000$7,837,000, which primarily reflects the purchasesincludes principal payments on notes payable and long-term debt of property$8,250,000, borrowings on notes payable and equipmentlong-term debt of $6,560,000$16,945,000, contributions from non-controlling interests of $22,000 and sale leaseback proceedsdistributions to non-controlling interests of $1,397,000. Purchases of property and equipment is comprised primarily of the following:$880,000.
Net cash provided by financing activities for the three quarters ended June 25, 2019 was $2,440,000, which includes principal payments on notes payable and long-term debt of $2,480,000, borrowings on notes payable and long-term debt of $6,150,000, proceeds from the exercise of stock options of $3,000 and net distributions to non-controlling interests of $1,233,000.
Net cash used in financing activities for the three quarters ended June 26, 2018 was $625,000, which includes principal payments on notes payable, long-term debt and capital leases of $1,613,000, borrowings on notes payable and long-term debt of $1,400,000 and net distributions to non-controlling interests of $412,000.
Contingencies
We remain contingently liable on various leases underlying restaurants that were previously sold to franchisees. We have never experienced any losses related to these contingent lease liabilities, however if a franchisee defaults on the payments under the leases, we would be liable for the lease payments as the assignor or sublessor of the lease. Currently we have not been notified nor are we aware of any leases in default under which we are contingently liable, however there can be no assurance that there will not be in the future, which could have a material effect on our future operating results.
Additionally, in the normal course of business, there may be various claims in process, matters in litigation, and other contingencies brought against the company by employees, vendors, customers, franchisees, or other parties. Evaluating these contingencies is a complex process that may involve substantial judgment on the potential outcome of such matters, and the ultimate outcome of such contingencies may differ from our current analysis. We review the adequacy of accruals and disclosures related to such contingent liabilities in consultation with legal counsel. While it is not possible to predict the outcome of these claims with certainty, it is management’s opinion that potential losses associated with such contingencies would be immaterial to our financial statements.
Impact of Inflation
The total menu price increases at our Good Times restaurants during fiscal 2019 were approximately 4.4%, and we raised menu prices approximately 4.0% during the first three quarters of fiscal 2020. The total menu increases taken at our Bad Daddy’s restaurants during fiscal 20182019 were approximately 3.2%.1.5% on average. We have raised menu prices during the first three quarters of fiscal 2019 by2020 approximately 1.6%2.4%. The total menu price increases at our Good Times restaurantsCommodity prices have been elevated during fiscal 2018 were approximately 2.8%,2020, including significantly higher-than-normal pricing during June and July 2020. Due to the impact of the COVID-19 pandemic, availability of ground beef and bacon has been constrained and prices for those commodities have been substantially more volatile than in recent history. Due to these factors, we have raised menu prices approximately 4.4% duringare not able to predict the first three quartersimpact of fiscal 2019. Commodity costs began to decline during the first half of fiscal 2018 and continued to decline into the first quarter of fiscal 2019, with relative stability during the second and third quarters. We do not anticipate future price increases during the remainder of fiscal 2019 but expect Good Times’ and Bad Daddy’s’inflation on our food and packaging costs as a percentage of sales for the remainderbalance of fiscal 2019 to be relatively consistent with or slightly elevated compared to the current quarter.year.
Seasonality
Revenues of the Company are subject to seasonal fluctuations based primarily on weather conditions adversely affecting Colorado restaurant sales betweenin December, throughJanuary, February and March.
Recent Accounting Pronouncements
On September 25, 2019, the first day of fiscal year 2020, the Company adopted the FASB ASU 2016-02, Leases (Topic 842). See notes 2, 3 and 11 to the condensed consolidated financial statements above.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required.
ITEM | CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report on formForm 10Q, the Company’s Chief Executive Officer and Controller (its principal executive officer and principal financial officer, respectively) haveofficer) has concluded that the Company’s disclosure controls and procedures were effective.effective as of June 30, 2020.
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Changes in Internal Control over Financial Reporting
There have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 25, 201930, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.reporting other than controls implemented to account under FASB ASU 2016-02, Leases (Topic 842).
PART II - OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
The Company is periodically subject to legal proceedings which are incidental to its business. These legal proceedings are not expected to have a material impact on the Company.
ITEM 1A. | RISK FACTORS |
There have been no material changes fromThe following risk factor updates the risk factors previously disclosed in our most recent Annual Report on Form 10-K for the fiscal year ended September 24, 2019 filed with the Securities and Exchange Commission.Commission:
The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic have significantly disrupted and will continue to disrupt our business, which has and could continue to materially affect our financial condition and operating results for an extended period of time.
The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic, as well as our responses to the outbreak, have significantly disrupted and will continue to disrupt our business. In the United States social distancing restrictions have been enacted and, in many areas, individuals are restricted from non-essential movements outside of their homes. With the reopening of all Bad Daddy’s Burger Bar dining rooms, we are operating under capacity restrictions for some time as social distancing protocols remain in place, and we are unable to determine at what point, if ever, capacity will be restored to pre-pandemic levels. Additionally, an outbreak or perceived outbreak of COVID-19 connected to one or more of our restaurants could cause negative publicity and cause customers to avoid our restaurants. We cannot predict how long the pandemic will last or whether it will reoccur, what additional restrictions may be enacted, or if individuals will be comfortable returning to our restaurants during or following social distancing protocols. Similarly, we cannot predict the effects the COVID-19 pandemic will have on the restaurant industry as a whole or the share of customer traffic to our restaurants compared to other restaurants. Any of these changes could materially adversely affect our financial performance.
Our restaurant operations could be further disrupted if any of our restaurant staff members is diagnosed with COVID-19, requiring the quarantine of some or all of a restaurant’s staff members and the temporary closure of the restaurant. If a significant percentage of our workforce is unable to work, due to COVID-19 illness, quarantine or other government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially materially adversely affecting our liquidity, financial condition or results of operations. Our suppliers could be similarly adversely impacted by the COVID-19 outbreak, and we could face shortages of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such supply interruptions.
In addition, while we have taken actions to manage our liquidity position in response to COVID-19, such as temporary reductions in management pay, temporary reductions in work force, extended vendor payment terms and receiving Paycheck Protection Program loans, we may need to seek additional sources of liquidity. 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 the COVID-19 pandemic lasts or if it were to reoccur in the future.
The full impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic, and reduced operations. The significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
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ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable.applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
(a) | Exhibits. The following exhibits are furnished as part of this report: |
*filed herewith
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GOOD TIMES RESTAURANTS INC. | |||
DATE: August | |||
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Ryan M. Zink Chief |
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