UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended ~~June~~March 29 ~~2021~~, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission File Number: 0-18590

(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)

651 CORPORATE CIRCLE, ~~SUITE 200,~~ GOLDEN, CO 80401

(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☒

No☐

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☒

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes☐

No☒

As of ~~August 9, 2021~~May 5, 2022, there were ~~12,829,267~~12,487,591 shares of the Registrant's common stock, par value $0.001 per share, issued and outstanding.

Form 10-Q

Quarter Ended ~~June~~March 29, ~~2021~~

2022

~~INDEX~~

~~PAGE~~


Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1817

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2928

Item 4.	Controls and Procedures	3028

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	3028

Item 1A.	Risk Factors	3028

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3028

Item 3.	Defaults Upon Senior Securities	3029

Item 4.	Mine Safety Disclosures	3029

Item 5.	Other Information	3129

Item 6.	Exhibits	3129

	SIGNATURES	3130

	CERTIFICATIONS

Table of Contents

~~Table of Contents~~

PART I. - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

~~ITEM 1.FINANCIAL STATEMENTS~~

Good Times Restaurants Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data)

	June 29, 2021			September 29, 2020			March 29, 2022			September 28, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	10,301		$	11,454		$	7,066		$	8,856
Receivables, net of allowance for doubtful accounts of $0		377			656			1,415			644
Prepaid expenses and other		488			275			1,817			641
Inventories		1,195			1,093			1,380			1,303
Notes receivable		0-			13
Total current assets		12,361			13,491			11,678			11,444
PROPERTY AND EQUIPMENT:
Land and building		4,704			4,704			4,670			4,704
Leasehold improvements		34,435			33,280			35,044			35,089
Fixtures and equipment		29,936			28,593			29,855			30,286
Total property and equipment		69,075			66,577			69,569			70,079
Less accumulated depreciation and amortization		(41,786	)		(38,908	)		(45,367	)		(42,852	)
Total net property and equipment		27,289			27,669			24,202			27,227
OTHER ASSETS:
Operating lease right-of-use assets, net		46,678			49,252			44,741			45,737
Deposits and other assets		225			209			213			219
Trademarks		3,900			3,900			3,900			3,900
Other intangibles, net		10			22			24			4
Goodwill		5,150			5,150			5,713			5,150
Total other assets		55,963			58,533			54,591			55,010

TOTAL ASSETS:	$	95,613		$	99,693		$	90,471		$	93,681
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	0-		$	6,242
Accounts payable		2,163			2,581			705			1,496
Deferred income		65			69			57			61
Operating lease liabilities, current		4,857			4,689			5,279			4,935
Other accrued liabilities		6,491			5,055			6,677			6,394
Total current liabilities		13,576			18,636			12,718			12,886
LONG-TERM LIABILITIES:
Maturities of long-term debt due after one year		0-			10,903
Operating lease liabilities, net of current portion		50,698			53,731			48,215			49,723
Deferred and other liabilities		234			1,440			176			202
Total long-term liabilities		50,932			66,074			48,391			49,925
STOCKHOLDERS’ EQUITY:
Good Times Restaurants Inc. stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, 0 shares issued and outstanding as of 6/29/21 and 9/29/20		0-			0-
Common stock, $.001 par value; 50,000,000 shares authorized, 12,830,879 and 12,612,852 shares issued and outstanding as of 6/29/21 and 9/29/20, respectively		13			13
SHAREHOLDERS’ EQUITY:
Good Times Restaurants Inc. shareholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding as of March 29, 2022 and September 28, 2021								-			-
Common stock, $.001 par value; 50,000,000 shares authorized, 12,487,591 and 12,512,072 shares issued and outstanding as of March 29, 2022 and September 28, 2021, respectively								13			13
Capital contributed in excess of par value		58,953			58,219			59,258			59,021
Treasury stock-at cost; 43,110 shares		(75	)		(75	)
Treasury stock, at cost; 452,251 and 376,351 shares as of March 29, 2022 and September 28, 2021, respectively								(1,939	)		(1,608	)
Accumulated deficit		(28,934	)		(44,467	)		(29,500	)		(27,680	)
Total Good Times Restaurants Inc. stockholders' equity		29,957			13,690
Total Good Times Restaurants Inc. shareholders' equity								27,832			29,746

Non-controlling interests		1,148			1,293			1,530			1,124
Total stockholders’ equity		31,105			14,983
Total shareholders’ equity								29,362			30,870

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	95,613		$	99,693
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY							$	90,471		$	93,681

See accompanying notes to condensed consolidated financial statements (unaudited)

~~Table of Contents~~

Table of Contents

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 29, 2021 (13 Weeks)			June 30, 2020 (13 Weeks)			June 29, 2021 (39 Weeks)			June 30, 2020 (40 Weeks)			March 29, 2022 (13 Weeks)			March 30, 2021 (13 Weeks)			March 29, 2022 (26 Weeks)			March 30, 2021 (26 Weeks)
NET REVENUES:
Restaurant sales	$	33,701		$	24,190		$	89,777		$	80,781		$	33,364		$	28,995		$	66,040		$	56,076
Franchise revenues		245			167			657			572			233			197			473			412
Total net revenues		33,946			24,357			90,434			81,353			33,597			29,192			66,513			56,488

RESTAURANT OPERATING COSTS:
Food and packaging costs		9,989			7,046			26,037			24,249			10,457			8,207			20,683			16,048
Payroll and other employee benefit costs		11,261			7,397			29,787			29,297			11,555			9,645			22,732			18,526
Restaurant occupancy costs		2,183			2,089			6,533			6,739			2,377			2,155			4,705			4,350
Other restaurant operating costs		3,730			2,840			10,841			8,799			4,667			3,642			8,805			7,111
Preopening costs		301			31			420			992			-			80			50			119
Depreciation and amortization		938			983			2,797			3,175			1,013			930			1,997			1,859
Total restaurant operating costs		28,402			20,386			76,415			73,251			30,069			24,659			58,972			48,013

General and administrative costs		2,505			1,683			7,097			5,324			2,577			2,418			5,282			4,592
Advertising costs		597			515			1,616			1,571			812			510			1,453			1,019
Franchise costs		5			6			22			14			6			12			11			17
Impairment of goodwill		0-			0-			0-			10,000
Impairment of long-lived assets		0-			932			0-			5,291			1,753			-			1,753			-
Gain on restaurant asset sale		(9	)		(8	)		(28	)		(36	)
Gain on restaurant asset sale and lease termination														(43	)		(10	)		(657	)		(19	)
Litigation contingencies														332			-			332			-

INCOME (LOSS) FROM OPERATIONS:		2,446			843			5,312			(14,062	)		(1,909	)		1,603			(633	)		2,866

Other income (expense):
Interest expense, net		(66	)		(202	)		(244	)		(638	)
Gain on debt extinguishment		11,778			0-			11,778			0-
Total other income (expense), net		11,712			(202	)		11,534			(638	)
Other Expenses:
Interest and other expense, net														(11	)		(80	)		(29	)		(178	)

NET INCOME (LOSS):	$	14,158		$	641		$	16,846		$	(14,700	)
Income attributable to non-controlling interests		(524	)		(352	)		(1,313	)		(738	)
NET (LOSS) INCOME BEFORE INCOME TAXES:														(1,920	)		1,523			(662	)		2,688

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	13,634		$	289		$	15,533		$	(15,438	)
Income Tax Expense														-			-			(8	)		-

NET INCOME (LOSS) PER SHARE, ATTRIBUTABLE TO COMMON SHAREHOLDERS:
NET (LOSS) INCOME:													$	(1,920	)	$	1,523		$	(670	)	$	2,688
Income attributable to non-controlling interests														(230	)		(426	)		(1,150	)		(789	)

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS													$	(2,150	)	$	1,097		$	(1,820	)	$	1,899

NET (LOSS) INCOME PER SHARE, ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Basic	$	1.07		$	0.02		$	1.22		$	(1.23	)	$	(0.17	)	$	0.09		$	(0.15	)	$	0.15
Diluted	$	1.04		$	0.02		$	1.21		$	(1.23	)		N/A		$	0.09			N/A		$	0.15

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		12,787,390			12,591,079			12,689,587			12,593,137			12,527,625			12,659,296			12,525,048			12,640,686
Diluted		13,076,635			12,696,028			12,793,915			12,593,137			12,527,625			12,826,263			12,525,048			12,733,932

See accompanying notes to condensed consolidated financial statements (unaudited)

~~Table of Contents~~

Table of Contents

Good Times Restaurants Inc. and Subsidiaries

Consolidated Statements of ~~Stockholders’~~Shareholders’ Equity (Unaudited)

Year-to-Date ~~June~~March 29, ~~2021~~2022

(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 29, 2020
43,110
$
(75
)
12,612,852
$
13
$
58,219
$
1,293
$
(44,467
)
$
14,983

Stock-based compensation cost
-
-
-
-
61
-
-
61

Restricted stock unit vesting
-
0-
16,548
-
-
-
-
-

Stock option exercise
-
-
7,984
-
13
-
-
13

Non-controlling interests:

Income
-
-
-
-
-
363
-
363

Distributions
-
-
-
-
-
(319
)
-
(319
)
Net Income attributable to common shareholders and comprehensive loss
-
-
-
-
-
-
802
802

BALANCES, December 29, 2020
43,110
$
(75
)
12,637,384
$
13
$
58,293
$
1,337
$
(43,665
)
$
15,903

Stock-based compensation cost
-
-
-
-
215
-
-
215

Common stock granted
-
-
12,948
-
-
-
-
-
Performance shares granted
-
-
10,000
-
-
-
-
-
Stock option exercise
-
-
35,346
-
83
-
-
83
Non-controlling interests:

Income
-
-
-
-
-
426
-
426

Distributions
-
-
-
-
-
(536
)
-
(536
)
Net Income attributable to common shareholders and comprehensive income
-
-
-
-
-
-
1,097
1,097

BALANCES, March 30, 2021
43,110
$
(75
)
12,695,678
$
13
$
58,591
$
1,227
$
(42,568
)
$
17,188

Stock-based compensation cost
-
-
-
-
51
-
-
51

Stock option exercises
-
-
126,918
-
311
-
-
311

Restricted stock unit vesting
-
0-
8,283
-
-
-
-
-
Non-controlling interests:

Income
-
-
-
-
-
524
-
524

Contributions
-
-
-
-
-
14
-
14
Distributions
-
-
-
-
-
(617
)
-
(617
)
Net Income attributable to common shareholders and comprehensive income
-
-
-
-
-
-
13,634
13,634

BALANCES, June 29, 2021
43,110
$
(75
)
12,830,879
$
13
$
58,953
$
1,148
$
(28,934
)
$
31,105

	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 28,2021		376,351	$	(1,608	)		12,512,072		$	13	$	59,021	$	1,124		$	(27,680	)	$	30,870

Stock-based compensation cost		-		-			-			-		95		-			-			95
Restricted stock unit vesting		-		-			13,366			-		-		-			-			-
Common stock grants		-		-			9,256			-		-		-			-			-
Stock option exercise		-		-			5,000			-		6		-			-			6
Non-controlling interests:
Income		-		-			-			-		-		920			-			920
Distributions		-		-			-			-		-		(632	)		-			(632	)
Net Income attributable to common shareholders and comprehensive income		-		-			-			-		-		-			330			330

BALANCES, December 28, 2021		376,351	$	(1,608	)		12,539,694		$	13	$	59,122	$	1,412		$	(27,350	)	$	31,589

Stock-based compensation cost		-		-			-			-		52		-			-			52
Restricted stock unit vesting		-		-			-			-		-		-			-			-
Stock option exercise		-		-			23,797			-		84		-			-			84
Repurchases of common stock		75,900		(331	)		(75,900	)		-		-		-			-			(331	)
Non-controlling interests:
Income		-		-			-			-		-		230			-			230
Distributions		-		-			-			-		-		(112	)		-			(112	)
Net Income attributable to common shareholders and comprehensive loss		-		-			-			-		-		-			(2,150	)		(2,150	)

BALANCES, March 29, 2022		452,251	$	(1,939	)		12,487,591		$	13	$	59,258	$	1,530		$	(29,500	)	$	29,362

See accompanying notes to consolidated financial statements (unaudited)

~~Table of Contents~~

Table of Contents

Good Times Restaurants Inc. and Subsidiaries

Consolidated Statements of ~~Stockholders’~~Shareholders’ Equity (Unaudited)

Year-to-Date ~~June~~March 30, ~~2020~~2021

(In thousands, except share and per share data)

	Treasury Stock, at cost					Common Stock																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			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
BALANCES, September 29, 2020																							43,110	$	(75	)		12,612,852	$	13	$	58,219	$	1,293		$	(44,467	)	$	14,983

Stock-based compensation cost		-		-			-			-		74		-			-			74			-		-			-		-		61		-			-			61
Restricted stock unit vesting		-		0-			76,643			-		-		-			-			-			-		-			16,548		-		-		-			-			-
Stock option exercise		-		-			2,413			-		-		-			-			-			-		-			7,984		-		13		-			-			13
Non-controlling interests:
Treasury shares purchased		43,110		(75	)		(43,110	)		-		-		-			-			(75	)
Non-controlling interests:
Income		-		-			-			-		-		212			-			212			-		-			-		-		-		363			-			363
Contributions		-		-			-			-		-		22			-			22
Distributions		-		-			-			-		-		(291	)		-			(291	)		-		-			-		-		-		(319	)		-			(319	)
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss		-		-			-			-		-		-			(811	)		(811	)
Net Income attributable to common shareholders and comprehensive loss																							-		-			-		-		-		-			802			802

BALANCES, December 31, 2019		43,110		(75	)		12,577,028			13		58,010		1,465			(31,362	)		28,051
BALANCES, December 29, 2020																							43,110	$	(75	)		12,637,384	$	13	$	58,293	$	1,337		$	(43,665	)	$	15,903

Stock-based compensation cost		-		-			-			-		75		-			-			75			-		-			-		-		215		-			-			215
Restricted stock unit vesting		-		0-			14,000			-		-		-			-			-
Non-controlling interests:
Common stock granted																							-		-			12,948		-		-		-			-			-
Performance shares granted																												10,000		-		-		-			-			-
Stock option exercise																							-		-			35,346		-		83		-			-			83
Non-controlling interests:
Income		-		-			-			-		-		174			-			174			-		-			-		-		-		426			-			426
Distributions		-		-			-			-		-		(95	)		-			(95	)		-		-			-		-		-		(536	)		-			(536	)
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss		-		-			-			-		-		-			(14,916	)		(14,916	)
Net Income attributable to common shareholders and comprehensive income																							-		-			-		-		-		-			1,097			1,097

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		-		0-			4,626			-		-		-			-			-
Non-controlling interests:
Income		-		-			-			-		-		352			-			352
Distributions		-		-			-			-		-		(494	)		-			(494	)
Net Income attributable to Good Times Restaurants Inc and comprehensive income		-		-			-			-		-		-			289			289

BALANCES, June 30, 2020		43,110		(75	)		12,595,654		$	13	$	58,159	$	1,402		$	(45,989	)	$	13,510
BALANCES, March 30, 2021																							43,110	$	(75	)		12,695,678	$	13	$	58,591	$	1,227		$	(42,568	)	$	17,188

See accompanying notes to consolidated financial statements (unaudited)

~~Table of Contents~~

Table of Contents

Good Times Restaurants Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Fiscal Year-to-Date
June 29, 2021
(39 Weeks)
June 30, 2020
(40 Weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
16,846
$
(14,700
)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
2,920
3,313
Amortization of operating lease assets
2,631
3,100
Impairment of goodwill
0-
10,000
Impairment of long-lived assets
0-
5,291
Stock-based compensation expense
327
223
Gain on loan extinguishment
(11,778
)
0-
Recognition of deferred gain on sale of restaurant building
(28
)
(36
)
Changes in operating assets and liabilities:
Receivables and other
280
443
Inventories
(102
)
41
Deposits and other
(260
)
(986
)
Accounts payable
(820
)
47
Operating lease liabilities
(2,922
)
(2,730
)
Deferred liabilities
(4
)
0-
Accrued and other liabilities
296
382
Net cash provided by operating activities
7,386
4,388

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment
(2,098
)
(2,294
)
Payments for the purchase of treasury stock
0-
(75
)
Proceeds from the sale of fixed assets
0-
55
Payments received from franchisees and others
13
9
Net cash used in investing activities
(2,085
)
(2,305
)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and long-term debt
0-
16,945
Principal payments on notes payable and long-term debt
(5,500
)
(8,250
)
Proceeds from stock option exercise
407
0-
Contributions from non-controlling interests
14
22
Distributions to non-controlling interests
(1,375
)
(880
)
Net cash (used in) provided by financing activities
(6,454
)
7,837

NET CHANGE IN CASH AND CASH EQUIVALENTS
(1,153
)
9,920

CASH AND CASH EQUIVALENTS, beginning of period
11,454
2,745

CASH AND CASH EQUIVALENTS, end of period
$
10,301
$
12,665

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
$
33
$
625
Change in accounts payable attributable to the purchase of property and equipment
$
500
$
(805
)

	Fiscal Year-to-Date
	March 29, 2022 (26 Weeks)			March 30, 2021 (26 Weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(670	)	$	2,688

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		2,114			1,938
Amortization of operating lease assets		1,751			1,660
Decrease in ROU assets		39			-
Impairment of long-lived assets		1,753			-
Gain on lease termination		(642	)
Stock-based compensation expense		147			276
Recognition of deferred gain on sale of restaurant building		(15	)		(19	)
Income tax provision		8			-
Changes in operating assets and liabilities:
Receivables and other		(26	)		221
Prepaid expense		(1,172	)		-
Inventories		(57	)		(9	)
Deposits and other		33			(605	)
Accounts payable		(370	)		(860	)
Operating lease liabilities		(1,976	)		(1,821	)
Deferred liabilities		-			(12	)
Accrued and other liabilities		395			(225	)
Net cash provided by operating activities		1,312			3,232

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment		(1,177	)		(1,184	)
Acquisition of restaurant from franchisee, net of cash acquired		(728	)		-
Payments received from franchisees and others		-			13
Net cash used in investing activities		(1,905	)		(1,171	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for the purchase of treasury stock		(331	)		-
Principal payments on notes payable and long-term debt		-			(2,000	)
Proceeds from stock option exercise		90			96
Distributions to non-controlling interests		(956	)		(407	)
Net cash (used in) provided by financing activities		(1,197	)		(2,311	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(1,790	)		(250	)

CASH AND CASH EQUIVALENTS, beginning of period		8,856			11,454

CASH AND CASH EQUIVALENTS, end of period	$	7,066		$	11,204

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	9		$	106
Change in accounts payable attributable to the purchase of property and equipment	$	(421	)	$	170

See accompanying notes to condensed consolidated financial statements (Unaudited)

~~Table of Contents~~

Table of Contents

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

~~Note 1.~~ ~~Basis of Presentation~~

The accompanying unaudited condensed consolidated financial statements include the accounts of Good Times Restaurants Inc. (the “Company”) and its wholly-owned subsidiaries Bad Daddy’s International, LLC (“BDI”), BD of Colorado, LLC (“BDC”), Bad Daddy’s Franchise Development, LLC (“BDFD”), and Good Times Drive Thru, Inc. (“Drive Thru”), (together referred to as well as six partnerships in which the ~~“Company”, “we” or “us”).~~Company is the controlling partner. All significant intercompany balances and transactions have been eliminated in consolidation.

~~BDC was formed by Good Times Restaurants Inc. in 2013 to develop~~

The Company operates, franchises, and licenses full-service restaurants under the brand 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 29, 2021, operates thirty-three Company-owned and five joint-venture full-service small-box casual dining restaurants under the name Bad Daddy’s Burger Bar, that are primarily located in Colorado and in the Southeast region of the United ~~States,~~States.

The Company operates and 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 29, 2021, operates seventeen Company-owned and seven joint-venture~~ drive-thru fast food hamburger restaurants under the ~~name~~ brand Good Times Burgers & Frozen 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~~March 29, ~~2021~~2022 and the results of its operations and its cash flows for the ~~three~~two fiscal quarters ended ~~June~~March 29, ~~2021~~2022 and ~~June~~March 30, ~~2020.~~2021. Operating results for the ~~three~~two fiscal quarters ended ~~June~~March 29, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending September ~~28, 2021.~~27, 2022. The condensed consolidated balance sheet as of September ~~29, 2020~~28, 2021 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 ~~29, 2020.~~28, 2021.

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. The ~~third fiscal~~ quarters ended ~~June~~March 29, ~~2021~~2022 and ~~June~~March 30, ~~2020~~2021 each consisted of 13 ~~weeks and the~~weeks. The year-to-date periods ended ~~June~~March 29, 2022 and March 30, 2021 ~~and June 30, 2020~~each consisted of ~~39 and 40 weeks, respectively.~~26 weeks.

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 ~~funds.~~fund. The 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~~We recognize costs associated with the advertising ~~contributions towards advertising expenditures,~~funds based upon the same expense recognition principles we ~~recognize costs equal~~apply to ~~franchisee contributions to the Advertising Funds on a quarterly basis.~~other expenses. Contributions to the Advertising Funds from our franchisees were ~~$205,000~~$136,000 and ~~$176,000~~$131,000 for the ~~three fiscal~~ quarters ended ~~June~~March 29, 2022 and March 30, 2021, respectively and ~~June 30, 2020, respectively.~~are included in franchise revenues.

~~Reclassification~~

Receivables – ~~Certain prior year balances have~~Our receivables typically consist of royalties and other fees due to us from independent franchisees of our brands as well as product rebates and other incentives due to us under agreements with our food and beverage vendors. The receivable balance for the quarter ended March 29, 2022 includes approximately $745,000 due to us under the lease termination agreement further described in Note 6 to these financial statements, such amount which had been ~~reclassified to conform~~deposited into an escrow account with a qualified escrow agent but was actually received by us subsequent to the ~~current year’s presentation. Such reclassifications had no effect on~~end of the ~~net income (loss). Notable reclassifications include the recategorization~~quarter.

COVID-19

Currently all of ~~paper goods costs from other restaurant operating costs to food and packaging costs for the~~our Bad Daddy’s and Good Times restaurants are operating ~~segment, and payroll and~~with no COVID-19 related ~~expenses attributable to managers-in-training from general and administrative costs to payroll and other employee benefit costs.~~

~~COVID-19~~

~~The global crisis resulting~~government restrictions or mask mandates. However, the second-and third-order effects from the ~~spread of COVID-19~~pandemic has had a ~~substantial~~lingering impact on our restaurant operations for the ~~three fiscal~~two quarters ended ~~June~~March 29, ~~2021~~2022 including disruptions and ~~June 30, 2020.~~

~~During portions of~~other impacts to 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~~supply chain and ~~carry-out service, with dining rooms closed by government orders. Although our dining rooms were re-opened~~labor markets, and varying changes in early June 2020, all continued to operate at some reduction of capacity, whether driven by explicit capacity reductions under government orders, or due to social distancing protocols that were either mandated by the same government orders or followed our own internal protocols designed to maintain a safe foodservice environment, both for our employees and for our customers, until May 2021.

~~Table of Contents~~

consumer behavior. During portions of the month of November 2020 through early January 2021, all of the Company’s Bad Daddy’s Burger Bar restaurants in Colorado were open only for limited outdoor dining, delivery and carry-out service, with indoor dining rooms ~~once again~~ closed by government orders. InBeginning in early January 2021, we ~~re-opened these~~began to re-open Colorado dining rooms at Bad Daddy’s, with limited occupancy, as local regulations allowed. Our dining rooms in all other states in which Bad Daddy’s has operations were open ~~at reduced capacity,~~ during this time. ~~Presently,~~Although certain dining rooms were open, all were operating 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 ~~Bad Daddy’s restaurants are allowed~~own internal protocols designed to ~~operate at full capacity.~~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~~predict the ~~duration~~continued impact of the ~~impact~~effect of the COVID-19 pandemic on our business, including ~~the recent acceleration~~any mutations of the ~~spread of the Delta variant of COVID-19;~~virus and additional variants; neither are we able to predict how the pandemic will evolve nor how ~~various government entities~~the long-lived impacts on supply chain, labor market, and customer behavior will ~~respond to its evolution.~~evolve. Should additional dining room closures or mask mandates occur, our business ~~would~~could be adversely affected. Even without government orders, customers may choose to reduce or eliminate in-restaurant dining ~~because of~~if there are increasing numbers of COVID-19 cases, hospitalizations, or deaths. Furthermore, although certain available vaccines may reduce the risk of further government restrictions, there is no guarantee that the vaccine will be effective in eradicating the virus, additional mutations or variants of the virus may be resistant to any vaccine, and the length of the ongoing pandemic may change consumer behavior such that potential customers may still choose to reduce or eliminate in-restaurant dining.

Table of Contents

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, packaging and other products used in the production and serving 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 ~~the~~ number of items purchased per guest, or close some or all of our restaurants for an indeterminate period of time. ~~Ongoing material adverse~~The long-lived, residual impacts from the COVID-19 pandemic ~~including recent industry-wide labor shortages, the impact~~ and ~~duration of which are uncertain,~~its evolution could result in reduced revenue and cash flow and could affect our assessments of impairment of intangible assets, long-lived assets, or goodwill.

We took extraordinary actions to increase our liquidity in response to COVID-19 during fiscal 2020, including temporarily reducing employee pay, reductions in workforce, and obtaining Paycheck Protection Program (the “PPP”) loans. The PPP is sponsored by the Small Business Administration (the “SBA”). The PPP is part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). We have since significantly increased employment levels and restored pay to employees. Although we currently have a meaningful cash balance and generated significant cash flow from operations during the first three quarters of fiscal 2021, we currently intend to use a significant portion of this cash balance to repurchase Company stock by means of a tender offer. While we believe that we will continue to have adequate working capital to meet our current needs after the tender offer, should business decline significantly as a result of the pandemic or otherwise, we would not likely choose to, and we may not be able to, take some of the same actions as we took during fiscal 2020 to increase our liquidity as they would negatively impact the long-term performance of the business, and because there is no assurance that funds such as the PPP loans will be made available to us in the future. Furthermore, the COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts.

~~We applied for full forgiveness of our PPP loans, including those of our subsidiaries, on April 30, 2020 and received confirmation of full forgiveness of all such loans during June 2021.~~

Note 2.

Recent Accounting Pronouncements

~~Note 2.Recent Accounting Pronouncements~~

~~ASU No. 2019-12, Simplifying the Accounting for Income Taxes~~ - In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The new guidance is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal 2022. Early adoption is permitted. We anticipate adopting this update in the first quarter of fiscal 2022 and do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

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 3.~~ ~~Revenue~~

Note 3.

Revenue

Revenue Recognition

Revenues consist primarily of sales from restaurant operations and franchise revenue, which includes franchisee contributions to ~~Advertising Funds.~~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.

~~Table of Contents~~

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.

Note 4.

Goodwill and Intangible Assets

~~Note 4.Goodwill and Intangible Assets~~

The following table presents goodwill and intangible assets as of ~~June~~March 29, ~~2021~~2022 and September ~~29, 2020~~28, 2021 (in thousands):

June 29, 2021
September 29, 2020
Gross Carrying Amount
Accumulated Amortization
Net Carrying
Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying
Amount
Intangible assets subject to amortization:
Non-compete agreements
$
50
$
(40
)
$
10
$
50
$
(28
)
$
22
Indefinite-lived intangible assets:
Trademarks
3,900
-
3,900
3,900
-
3,900
Intangible assets, net
$
3,950
$
(40
)
$
3,910
$
3,950
$
(28
)
$
3,922

Goodwill
$
5,150
$
0-
$
5,150
$
5,150
$
0-
$
5,150

	March 29, 2022							September 28, 2021
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible assets subject to amortization:
Non-compete agreements	$	25	$	(1	)	$	24	$	50	$	(46	)	$	4
Indefinite-lived intangible assets:
Trademarks		3,900		-			3,900		3,900		-			3,900
Intangible assets, net	$	3,925	$	(1	)	$	3,924	$	3,950	$	(46	)	$	3,904

Goodwill	$	5,713	$	-		$	5,713	$	5,150	$	-		$	5,150

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The Company had no goodwill impairment losses in the ~~year-to-date period ended June 29, 2021. The Company recorded a $10,000,000 impairment to goodwill~~periods presented in the ~~second fiscal quarter of 2020 related to its Bad Daddy’s reporting unit.~~above table. The aggregate amortization expense related to these and previously fully-amortized intangible assets subject to amortization was ~~$12,000~~$5,000 for the ~~three fiscal~~two quarters ended ~~June~~March 29, 2022 and $8,000 for the two quarters ended March 30, 2021. ~~The estimated aggregate future amortization expense as~~During the two quarters ended March 29, 2022, the company purchased one previously franchised Bad Daddy’s restaurant in Greenville, SC and in connection with this purchase recorded $563,000 of ~~June 29, 2021 is $10,000, including $4,000 in the remainder of fiscal 2021 and $6,000 during fiscal 2022.~~additional goodwill.

Note 5.

Stock-Based Compensation

~~Note 5.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 ~~which was amended effective February 9, 2021~~ (the “2018 Plan”)~~. All future~~ during the third fiscal quarter of 2018, pursuant to shareholder approval. Future awards will be issued under the 2018 ~~plan.~~Plan. Currently, the maximum number of shares available for issuance under the 2018 Plan is 1,050,000.

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 Company recognizes the impact of forfeitures as forfeitures occur.

Our net ~~income~~ (loss) for the ~~three~~two quarters ended ~~June~~March 29, 2022 and March 30, 2021 includes $147,000 and ~~June 30, 2020 includes $327,000 and $223,000,~~$276,000, respectively, of compensation costs related to our stock-based compensation arrangements.

Stock Option ~~Awards~~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~~two quarters ended ~~June~~March 29, ~~2021.~~2022. 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 29, 2021, the Company granted 90,000 incentive stock options to its Chief Executive Officer, from available shares under its 2018 Plan, with an exercise price of $2.33 per share and a per share weighted average fair value of $1.22. These options were granted pursuant to the Chief Executive Officer’s Second Amended and Restated Employment Agreement dated December 24, 2020. These options became fully vested on April 6, 2021 pursuant to the terms of the employment agreement and related stock option grant agreement.

~~During the three quarters ended June 30, 2020, there were no incentive stock options granted.~~

~~Table of Contents~~

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:

	~~Three Quarters Ended June 29, 2021~~ ~~Incentive and Non-Qualified Stock Options~~

~~Expected term (years)~~		~~3.63~~
~~Expected volatility~~		~~74.62~~	%
~~Risk-free interest rate~~		~~0.24~~	%
~~Expected dividends~~		0-

	Two Quarters Ended March 29, 2022 Incentive and Non-Qualified Stock Options	Two Quarters Ended March 30, 2021 Incentive and Non-Qualified Stock Options

Expected term (years)	6.5	3.63
Expected volatility	61.3%	74.62%
Risk-free interest rate	1.8%	0.24%
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~~two quarters ended ~~June~~March 29, ~~2021~~2022 under all plans:

Shares
Weighted
Average
Exercise Price
Weighted Avg.
Remaining
Contractual Life (Yrs.)

Outstanding at beginning of year
630,268
$
3.56
Options granted
90,000
$
2.33
Options exercised
(170,248
)
$
2.39
Forfeited
(14,309
)
$
3.76
Expired
(20,629
)
$
1.56
Outstanding June 29, 2021
515,082
$
3.81
5.7
Exercisable June 29, 2021
421,862
$
3.73
5.4

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs)

Outstanding at beginning of year		443,815		$	3.63
Options granted		105,000		$	4.90
Options exercised		(28,797	)	$	3.10
Outstanding March 29, 2022		520,018		$	3.91		5.7
Exercisable March 29, 2022		352,934		$	3.57		5.1

As of ~~June~~March 29, ~~2021,~~2022, the aggregate intrinsic value of the outstanding and exercisable options was ~~$358,000 and $331,000, respectively.~~$567,000. Only options whose exercise price is below the ~~current market~~closing price of the ~~underlying~~Company’s common stock as of March 29, 2022 are included in the intrinsic value calculation.

During the quarter ended March 29, 2022, the Company granted 25,000 non-qualified stock options to its Senior Vice President of Finance pursuant to Rule 5635(c)(4) of the Nasdaq Stock Market Listing Rules as an inducement to employment at an exercise price of $3.95 per share. The options were granted on the Senior Vice President of Finance’s first day of employment on March 7, 2022 and vest ratably over a three-year period with a 10-year expiration date.

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As of ~~June~~March 29, ~~2021,~~2022, the total remaining unrecognized compensation cost related to non-vested stock options was ~~$110,000~~approximately $283,000 and is expected to be recognized over a weighted average period of approximately ~~1.5~~1.8 years.

There were ~~170,248 stock options exercised during the three quarters ended June 29, 2021 with proceeds of approximately $407,000. There were 15,646~~23,797 stock options exercised that resulted in an issuance of ~~2,413~~23,797 shares during the ~~three~~two quarters ended ~~June~~March 29, 2022 with proceeds of approximately $90,000. There were 43,330 stock options exercised during the two quarters ended March 30, ~~2020~~2021 with ~~0no~~ proceeds ~~in conjunction with~~of approximately $96,000.

Restricted Stock Units

During the ~~termination~~two quarters ended March 29, 2022, there were 28,000 restricted stock units granted. For the two quarters ended March 30, 2021, there were no restricted stock units granted.

A summary of the ~~Company’s CEO pursuant~~status of non-vested restricted stock as of March 29, 2022 is presented below.

	Shares			Grant Date Fair Value Per Share

Non-vested shares at beginning of year		61,952		$1.54 to $3.95
Granted		28,000		$4.50
Vested		(15,616	)	$3.95
Non-vested shares at March 29, 2022		74,336		$1.54 to $4.50

As of March 29, 2022, there was $136,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a ~~severance~~weighted average period of approximately 0.7 years.

Restricted and ~~separation agreement.~~

Unrestricted Common Stock ~~and Performance Share Grants~~Awards

During the ~~three~~two quarters ended ~~June~~March 29, 2022 there were 9,256 unrestricted shares of common stock granted to directors of the Company. These shares had a grant date fair value of $4.35 per share which is equal to the closing price of the stock on the date of grant and resulted in the recognition of $40,000 of stock-based compensation expense. During the two quarters ended March 30, 2021, the Company granted its ~~Directors~~directors 12,948 shares of common stock and its Chief Executive Officer 10,000 performance shares from available shares under its 2018 Plan. The shares were issued with a grant date fair market value of $2.78 and $2.77, respectively, which is equal to the closing price of the stock on the date of grants. The performance shares granted to the Chief Executive Officer became fully vested on April 6, 2021 pursuant to the vesting provisions set forth in the grant notice.

~~No common stock or performance shares were granted~~

Note 6.

Gain on Sale of Assets and Lease Termination

The Company had previously entered into an agreement with the landlord for one of its Good Times restaurants which provided the landlord an option to terminate the lease with a six-month notice in exchange for a specific termination penalty. During the fiscal quarter ended December 28, 2021 the landlord for this location exercised the termination option. The Company continued to operate this location through the majority of the notice period ending March 31, 2022. For the two quarters ended March 29, 2022, we recognized a $642,000 gain in connection with the lease termination. The remainder of the gain recognized during the ~~three~~two quarters ended ~~June 30, 2020.~~

~~Restricted Stock Units~~

~~No restricted stock units were granted during~~March 29, 2022 is the ~~three quarters ended June 29, 2021.~~

~~During the three quarters ended June 30, 2020 the Company granted a total~~periodic recognition of ~~60,336 restricted stock units~~deferred gains resulting from ~~available shares under its 2018 Plan. 46,336 shares were issued~~prior sale-leaseback transactions associated 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.certain Good Times restaurants.

~~Table of Contents~~

~~A summary of the status of non-vested restricted stock as of June 29, 2021 is presented below.~~

	~~Shares~~			~~Grant Date Fair~~ ~~Value Per Share~~

~~Non-vested shares at beginning of year~~		~~92,604~~		~~$1.54 to $3.95~~
~~Vested~~		~~(26,894~~	)	~~$2.52 to $3.95~~
~~Forfeited~~		~~(1,935~~	)	~~$2.30 to $2.68~~
~~Non-vested shares at June 29, 2021~~		~~63,775~~		~~$1.54 to $3.95~~

As of June 29, 2021, there was $60,000 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 0.4 years.

~~Note 6.Other Accrued Liabilities~~

~~Other accrued liabilities consist of the following as of:~~

June 29, 2021
June 30, 2020
Accrued salaries and wages
$
1,201
$
557
Accrued incentive compensation
1,295
885
Sales taxes payable
773
712
Accrued paid time off
520
443
Property taxes payable
357
324
Accrued other
2,345
2,134
$
6,491
$
5,055

Note 7.

Notes Payable and Long-Term Debt

~~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 has agreed to loan the Company up to ~~$11,000,000~~$8,000,000 with a maturity date of January 31, 2023 ~~(the~~(as amended, the “Cadence Credit Facility”). On February 21, 2019, the Cadence Credit Facility was amended, in connection with the 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 certain “Restricted Payments” (as defined in the Cadence Credit Facility). On January 8, 2021, the Cadence Credit Facility was amended to eliminate certain installment payments; reduce the commitment immediately to $11.0 million with reductions to $10.0 million and $8.0 million on March 31, 2021, and July 1, 2021, respectively; revise certain financial covenants; provide a mechanism for a transition from LIBOR to an alternate benchmark rate; and extend the maturity date to January 31, 2023. As amended by the various amendments, the Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. As of ~~June~~March 29, ~~2021,~~2022, any borrowings under the Cadence Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate, which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence ~~bank publicly-announced~~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~~elects to pay interest based on the base rate and at the end of each LIBOR period if it ~~selects~~elects to pay interest based on LIBOR. The Cadence Credit Facility, includes provisions for the Administrative Agent of the facility to amend the facility to replace LIBOR with an alternate benchmark rate, which may be (but is not required to be) SOFR, at such point in time when appliable LIBOR rates are no longer available or no longer reliable. The exact timing of any transition of LIBOR to an alternate benchmark rate is not currently known.

Table of Contents

During the ~~three fiscal quarters~~quarter ended ~~June~~March 29, ~~2021,~~2022 the ~~weighted average interest rate applicable~~Company entered into an amendment to ~~borrowings under~~ the Cadence Credit Facility ~~was 3.75%.~~which, among other things, amends the Credit Agreement to modify the “Restricted Payments” covenant in the Credit Agreement to exempt Company repurchases of common stock made in connection with the Company’s publicly announced share repurchase program.

As of ~~June~~March 29, ~~2021,~~2022, 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 financial covenants setting a maximum leverage ratio of 5.15:1, a minimum pre-distribution fixed charge coverage ratio of 1.25:1, a minimum post-distribution fixed charge coverage ratio of 1.10:1 and minimum liquidity of $2.0 million. As of ~~June~~March 29, ~~2021,~~2022, the Company was in compliance with all of these financial covenants under the Cadence Credit Facility.

As a result of entering into the Cadence Credit Facility and the various amendments, the Company paid loan origination costs including professional fees of approximately $308,500 and is amortizing these costs over the term of the credit agreement.

The obligations under the Cadence Credit Facility are collateralized by a first-priority lien on substantially all of the Company’s assets.

As of ~~June~~March 29, ~~2021,~~2022, there were no outstanding borrowings against the facility. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of ~~June~~March 29, ~~2021, the~~2022, there were no outstanding ~~face value of such~~ letters of credit ~~was $157,500.~~

~~Paycheck Protection Program Loans~~

~~On May 7, 2020, Good Times and three of its wholly-owned subsidiaries, BDI, Drive Thru, and BDC (each a “Borrower”), entered into unsecured loans in~~issued under the ~~aggregate principal amount of $11,645,000 (the “Loans”) with Cadence Bank, N.A. (the “Lender”) pursuant to the PPP.~~facility.

In June 2021, the SBA approved forgiveness in full of the Company’s Loan as well as the Loans of the Company’s subsidiaries, including accrued interest, in the aggregate amount of $11,778,226, which was recognized as gain on debt extinguishment in the fiscal quarter ended June 29, 2021. The principal and accrued interest balance on each of these Loans is now zero, as of the forgiveness date specific to each of the Company’s and its subsidiaries’ Loans.

Note 8.

Net (Loss) Income per Common Share

~~Table of Contents~~

~~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 29,
2021
June 30,
2020
June 29,
2021
June 30,
2020
Weighted-average shares outstanding basic
12,787,390
12,591,079
12,689,587
12,593,137
Effect of potentially dilutive securities:
Stock options
225,471
0-
40,553
0-
Restricted stock units
63,774
104,949
63,774
0-
Weighted-average shares outstanding diluted
13,076,635
12,696,028
12,793,915
12,593,137
Excluded from diluted weighted-average
shares outstanding:
Antidilutive
289,611
632,976
474,528
737,925

	Quarter Ended				Year-to-Date
	March 29, 2022		March 30, 2021		March 29, 2022		March 30, 2021
Weighted-average shares outstanding basic		12,527,625		12,695,296		12,525,048		12,640,686
Effect of potentially dilutive securities:
Stock options		-		91,909		-		18,188
Restricted stock units		-		75,058		-		75,058
Weighted-average shares outstanding diluted		12,527,625		12,826,263		12,525,048		12,733,932
Excluded from diluted weighted average shares outstanding:
Antidilutive		406,515		557,907		386,101		631,628

Note 9.

Contingent Liabilities and Liquidity

~~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.

As previously disclosed in the Company’s Form 10-K for the fiscal year ended September 29, 2020, the Company is the defendant party to a lawsuit filed by White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc, arising from the failed negotiations between plaintiffs and the Company for the sale of the Good Times Drive Thru division to plaintiffs. The lawsuit was initially filed on September 24, 2019 in Delaware Chancery Court and Company removed the case to federal court in the US District Court for the District of Delaware on November 5, 2019. As of June 30, 2021, the parties have completed fact discovery. On July 30, 2021, the plaintiffs moved the Court for leave to amend their complaint and add new causes of action and a claim for $18 million in damages. The Company opposes this motion on various grounds and will continue to vigorously pursue a full defense of this matter on the merits. While we believe the amended complaint is without merit, if the plaintiffs are successful, it could have a material impact to the Company.

~~Additionally, in the normal course of business, there~~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 regularly 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, subject to our disclosure immediately below, it is management’s opinion that ~~potential~~any reasonably possible losses associated with such contingencies would be immaterial to our financial statements.

~~Note 10.Leases~~

The Company is the defendant in a lawsuit styled as White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc., arising from the failed negotiations between plaintiffs and the Company for the sale of the Good Times Drive Thru subsidiary to plaintiffs. The lawsuit was initially filed on September 24, 2019 in Delaware Chancery Court, and Company removed the case to federal court in the US District Court for the District of Delaware on November 5, 2019. On July 30, 2021, the plaintiffs moved the Court for leave to amend their complaint and add new causes of action and a claim for $18 million in damages. On April 11, 2022, the Court heard the parties’ respective motions for summary judgment on the plaintiffs’ claims. The Court verbally ruled that it was dismissing all of the plaintiffs’ claims except for their claim for breach of an express and implied obligation to negotiate in good faith under the parties’ letter of intent. On May 5, 2022, the Court issued a written order confirming this ruling. Trial is set on this lone remaining claim for August 22, 2022. While the Court’s ruling significantly limited plaintiff’s opportunity for recovery in the case, in light of the ruling and the Court’s order, the inherent uncertainties of trial and the Company’s posture in respect of settlement, among other things, the Company has determined that some loss in respect of the lawsuit is probable and accordingly has recorded an accrual in the current period in the amount of $332,000. This amount represents the Company’s best estimate of the likely amount of plaintiffs’ damage recovery assuming a finding of liability in their favor at trial and their ability to satisfy the legal standard for proving damages in such amount, based upon the Company’s retained expert and a report he made in response to the plaintiffs’ claims for damages. The accrual is an estimate and is based on current information, the judgment of management and advice of counsel. The Company will continue to evaluate this matter based on new information as it becomes available. The outcome of the case could result in losses less than or in excess of amounts accrued. Any additional liability in excess of the accrual could have a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which any such additional liability is accrued. The Company will continue to vigorously pursue a full defense of this matter on the merits

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Note 10.

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 multiple renewal options, typically 5 years each, with cumulative renewal option periods 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.

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 accrued lease payments, initial direct costs and lease incentives. Lease incentives are recognized when earned and reduce our operating lease asset related to the lease. They are amortized through the operating lease assets as reductions of rent expense over the lease term.

~~Table of Contents~~

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 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.

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 ~~were~~are as follows for the fiscal quarters ~~ended:~~ended March 29, 2022 and March 30, 2021:

Lease cost
Classification
June 29, 2021
June 30, 2020
Operating lease cost
Occupancy, Other restaurant operating costs and General and administrative expenses, net
$
1,693
$
1,665
Variable lease cost
Occupancy
20
20
Sublease income
Occupancy
(136
)
(135
)
$
1,577
$
1,550

Lease cost	Classification	March 29, 2022			March 30, 2021
Operating lease cost	Occupancy, Other restaurant operating costs and General and administrative expenses, net	$	1,830		$	1,771
Variable lease cost	Occupancy		59			20
Sublease income	Occupancy		(136	)		(135	)
		$	1,753		$	1,656

Components of operating lease costs ~~were~~are as follows for the ~~three~~two fiscal quarters ~~ended:~~ended March 29, 2022 and March 30, 2021:

Lease cost
Classification
June 29, 2021
June 30, 2020
Operating lease cost
Occupancy, Other restaurant operating costs and General and administrative expenses, net
$
5,220
$
5,436
Variable lease cost
Occupancy
61
60
Sublease income
Occupancy
(400
)
(365
)

$
4,881
$
5,131

Lease cost	Classification	March 29, 2022			March 30, 2021
Operating lease cost	Occupancy, Other restaurant operating costs and General and administrative expenses, net	$	3,625		$	1,771
Variable lease cost	Occupancy		79			20
Sublease income	Occupancy		(272	)		(135	)
		$	3,432		$	1,656

Weighted average lease term and discount rate ~~were~~are as ~~follows as of:~~

follows:

	June 29, 2021			June 30, 2020			March 29, 2022			March 30, 2021
Weighted average remaining lease term (in years)		9.8			10.6			9.06			10.0

Weighted average discount rate		5.0	%		5.0	%		5.0	%		5.0	%

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Supplemental cash flow disclosures for the ~~three~~two fiscal quarters ~~ended:~~ended March 29, 2022:

June 29, 2021
June 30, 2020
Cash paid for operating lease liabilities
$
5,168
$
5,125

Non-cash operating lease assets obtained in exchange
for operating lease liabilities
$
57
$
3,077

	March 29, 2022		March 30, 2021
Cash paid for operating lease liabilities	$	3,621	$	3,461

Non-cash operating lease assets obtained in exchange for operating lease liabilities	$	872	$	110

Supplemental balance sheet disclosures:

June 29, 2021
September 29, 2020
Right-of-use assets
Operating lease assets
$
46,678
$
49,252

Current lease liabilities
Operating lease liability
$
4,857
$
4,689
Non-current lease liabilities
Operating lease liability, less current portion
50,698
53,731
Total lease liabilities
$
55,555
$
58,420

		March 29, 2022		March 30,2021
Right-of-use assets	Operating lease assets	$	44,741	$	47,702

Current lease liabilities	Operating lease liability	$	5,279	$	4,770
Non-current lease liabilities	Operating lease liability, less current portion		48,215		51,939
Total lease liabilities		$	53,494	$	56,709

Future minimum rent payments for our operating leases for each of the next five years as of ~~June~~March 29, ~~2021~~2022 are as follows:

Fiscal year ending:
Total

Remainder of 2021
$
2,064

2022
7,559

2023
7,608

2024
7,462

2025
7,565

Thereafter
39,111

Total minimum lease payments
71,369

Less: imputed interest
(15,814
)
Present value of lease liabilities
$
55,555

Fiscal year ending:	Total
Remainder of 2022	$	3,898
2023		7,833
2024		7,730
2025		7,814
2026		7,256
Thereafter		32,540
Total minimum lease payments		67,071
Less: imputed interest		(13,577	)
Present value of lease liabilities	$	53,494

~~Table of Contents~~

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

~~Note 11.Impairment of Long-Lived Assets and Goodwill~~

Long-Lived Assets. We review our long-lived assets including land, property, and equipment for 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 comparing the net 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 projections and operating results.

~~There were no~~

For the two quarters ended March 29, 2022, we recognized $1,753,000 in total asset impairments ~~in the~~for three ~~fiscal quarters ending June 29, 2021.~~

~~Given the results of our analyses at March 31, 2020~~restaurants. Of this amount, $487,000 was related to two Good Times restaurants and ~~June 30, 2020, we identified six restaurants where the expected future cash flows would not be sufficient~~$1,266,000 was related to ~~recover the carrying value of the associated assets.~~

~~The restaurants are all~~one Bad Daddy’s ~~restaurants,~~restaurant. During the two ~~each in North Carolina and Colorado, and one each in Tennessee and Georgia. We recorded non-cash charges of $5,291,000 related to the~~quarters ended March 30, 2021 no asset impairment ~~of these restaurants during the three quarters ending June 29, 2020.~~costs were recognized.

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~~March 29, ~~2021~~2022 and ~~June~~March 30, ~~2020.~~2021.

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~~March 29, ~~2021,~~2022, the Company had $96,000 of goodwill attributable to the Good Times reporting unit and ~~$5,054,000~~$5,617,000 of goodwill attributable to its Bad Daddy’s reporting unit.

No goodwill impairment charges were recognized during the ~~three~~two quarters ended ~~June~~March 29, ~~2021.~~

In2022. During the two quarters ended March ~~2020,~~29, 2022, 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 itscompany purchased one previously franchised Bad Daddy’s ~~restaurants under a delivery~~restaurant in Greenville, SC and ~~carry-out model. As such, the consequences~~in connection with this purchase recorded $563,000 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, equal to the excess of the Bad Daddy’s reporting unit's carrying value above its fair value. No goodwill impairment charges were recognized related to goodwill attributable to its Good Times reporting unit.additional goodwill.

~~Changes in the carrying amount of goodwill for the three fiscal 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

~~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.

Table of Contents

~~Table of Contents~~

~~Although the~~The Company had a net ~~income during~~loss in the ~~three fiscal quarters~~quarter ended ~~June~~March 29, ~~2021, we~~2022 and continues to have significant net operating loss carryforwards from prior years and ~~incurred additional~~a history of net ~~operating~~ losses ~~during~~through the ~~three quarters ended June 30, 2020.~~duration of our existence. Full valuation allowances were ~~made~~established to reduce any deferred tax assets ~~incurred~~recorded to ~~0; therefore, 0 income tax provision or benefit was recognized~~zero for both the quarters ended ~~June~~March 29, ~~2021~~2022 and ~~June~~March 30, ~~2020~~2021. Although we have established a full valuation allowance on our deferred tax assets, we are subject to income tax in certain jurisdictions where we do not have substantial net operating loss carry forwards. As such, we have recognized a provision for income taxes of $8,000 for the quarter ended March 29, 2022 related to state income taxes resulting in an effective income tax rate of 0%2.0% for ~~both periods.~~the period. For the period ended March 30, 2021, we did not recognize any provision for income taxes as we estimated no current tax liability either for federal or state jurisdictions resulting in an effective tax rate of -0.4% for the period.

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 2018 through ~~2021.~~2022. The Company believes that its income tax filing positions and deductions will be sustained onupon 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, 0no 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. ~~NaN~~No accrual for interest and penalties was considered necessary as of ~~June~~March 29, ~~2021.~~2022.

Note 13.

Non-controlling Interests

~~Note 13.Non-controlling Interests~~

Non-controlling interests are presented as a separate item in the ~~stockholders’~~shareholders’ 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’~~shareholders’ 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.

The following table summarizes the activity in non-controlling interests during the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 (in thousands):

Bad Daddy’s
Good Times
Total
Balance at September 29, 2020
$
1,023
$
270
$
1,293
Income
688
625
1,313
Contributions
14
0-
14
Distributions
(805
)
(667
)
(1,472
)
Balance at June 29, 2021
$
920
$
228
$
1,148

	Bad Daddy’s			Good Times			Total
Balance at September 28, 2021	$	915		$	209		$	1,124
Income		840			310			1,150
Distributions		(596	)		(148	)		(744	)
Balance at March 29, 2022	$	1,159		$	371		$	1,530

Our non-controlling interests consist of one joint-venture partnership involving seven Good Times restaurants and five joint-venture partnerships involving five Bad Daddy’s restaurants.

Note 14.

Subsequent Events

~~Note 14.Subsequent Events~~None.

~~None.~~

Note 15.

Segment Reporting

~~Note 15.Segment Reporting~~

All of our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service segment of the restaurant industry while our Good Times Burgers and Frozen Custard restaurants (Good Times) compete in the quick-service segment of the 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.

Table of Contents

~~Table of Contents~~

The following tables present information about our reportable segments for the respective periods (in thousands):

Quarter Ended
Year-to-Date
June 29, 2021
(13 Weeks)
June 30, 2020
(13 Weeks)
June 29, 2021
(39 Weeks)
June 30, 2020
(40 Weeks)
Revenues
Bad Daddy’s
$
24,481
$
14,928
$
64,263
$
57,199
Good Times
9,465
9,429
26,171
24,154
$
33,946
$
24,357
$
90,434
$
81,353
Income (loss) from operations
Bad Daddy’s
$
1,441
$
(906
)
$
2,759
$
(15,906
)
Good Times
830
1,827
2,655
2,036
Corporate
175
(78
)
(102
)
(192
)
$
2,446
$
843
$
5,312
$
(14,062
)
Capital expenditures
Bad Daddy’s
$
661
$
330
$
1,622
$
2,171
Good Times
110
3
272
90
Corporate
141
7
204
33
$
912
$
340
$
2,098
$
2,294

	Quarter Ended					Year-to-Date
	March 29, 2022 (13 Weeks)			March 30, 2021 (13 Weeks)		March 29, 2022 (26 Weeks)			March 30, 2021 (26 Weeks)
Revenues
Bad Daddy’s	$	25,524		$	21,029	$	50,196		$	39,782
Good Times		8,073			8,163		16,317			16,706
	$	33,597		$	29,192	$	66,513		$	56,488
Income (Loss) from operations
Bad Daddy’s	$	(807	)	$	863	$	(499	)	$	1,041
Good Times		(1,102	)		740	$	(134	)	$	1,825
	$	(1,909	)	$	1,603	$	(633	)	$	2,866
Capital expenditures
Bad Daddy’s	$	636		$	652	$	828		$	1,022
Good Times		62			49		107			162
	$	698		$	701	$	935		$	1,184

June 29, 2021
September 29, 2020
Property and equipment, net
Bad Daddy’s
$
23,414
$
23,586
Good Times
3,583
3,874
Corporate
292
209
$
27,289
$
27,669

	March 29, 2022		September 28, 2021
Property and equipment, net
Bad Daddy’s		21,569		23,293
Good Times		2,633		3,773
	$	24,202	$	27,066

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ITEM 2.

~~MANAGEMENT'S~~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 Section 21E of the Securities Exchange Act of 1934, as amended, and the disclosure of risk factors in the Company’s Form 10-K for the fiscal year ended September ~~29, 2020.~~28, 2021. 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)~~(II)

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.

(II)

We may be negatively impacted if we are unable to pass on to customers through menu price increases the increased costs that we incur through inflation experienced in our input costs including both the cost of food and the cost of labor. Recent metrics have indicated that increased levels of price inflation are prevalent throughout the economy and the impacts of such inflation, including the impact of related governmental response, cannot be accurately predicted.

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'~~workers’ compensation or energy; ~~our ability to adequately staff our restaurants;~~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 ~~and other risks,~~risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September ~~29, 2020, and Part II, Item 1A, “Risk Factors,” of this Form 10-Q below.~~28, 2021.

Overview.

Good Times ~~Restaurant~~Restaurants 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 targeted unit growth of the Bad Daddy’s concept while at the same time growing same store sales and improving the profitability of both the Bad Daddy’s and the Good ~~Times~~Times’ concepts.

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~~COVID-19.~~COVID-19

~~The global crisis resulting~~Currently all of our Bad Daddy’s and Good Times restaurants are operating with no COVID-19 related government restrictions or mask mandates. However, the second-and third-order effects from the ~~spread of COVID-19~~pandemic has had a ~~substantial~~lingering impact on our restaurant operations for the ~~three fiscal~~two quarters ended ~~June~~March 29, ~~2021~~2022 including disruptions and ~~June 30, 2020.~~

consumer behavior. During portions of the month of November 2020 through early January 2021, all of the Company’s Bad Daddy’s Burger Bar restaurants in Colorado were open only for limited outdoor dining, delivery and carry-out service, with indoor dining rooms ~~once again~~ closed by government orders. InBeginning in early January 2021, we ~~re-opened these~~began to re-open Colorado dining rooms at Bad Daddy’s, with limited occupancy, as local regulations allowed. Our dining rooms in all other states in which Bad Daddy’s has operations were open ~~at reduced capacity,~~ during this time. Although certain dining rooms were open, all were operating 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.

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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, packaging and other products used in the production and serving 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 ~~the~~ number of items purchased per guest, or close some or all of our restaurants for an indeterminate period of time. ~~Ongoing material adverse~~The long-lived, residual impacts from the COVID-19 pandemic ~~including recent industry-wide labor shortages, the impact~~ and ~~duration of which are uncertain,~~its evolution still could result in reduced revenue and cash flow and could affect our assessments of impairment of intangible assets, long-lived assets, or goodwill.

Growth Strategies and Outlook.

We believe there are significant opportunities to grow customer traffic and increase awareness of our brands. Prior 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 both of our concepts, we are evaluating that in-line with the impact of the pandemic on the restaurant industry. We ~~opened one~~currently are filling a restaurant development pipeline and expect new Bad Daddy’s restaurant ~~during the third~~openings beginning in fiscal ~~quarter and expect to open one additional Bad Daddy’s restaurant during the final fiscal quarter of fiscal 2021.~~2023.

Restaurant locations.

As of ~~June~~March 29, ~~2021,~~2022, we operated, franchised, or licensed a total of ~~forty~~forty-two Bad Daddy’s restaurants and ~~thirty-two~~thirty-one Good Times restaurants. The following table presents the number of restaurants operating at the end of the ~~third~~second fiscal quarters of ~~2021~~2022 and ~~2020.~~2021.

Company-Owned/Co-Developed/~~Joint-Venture:~~Joint-Venture

	Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total				Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total
	2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022		2021
Alabama		1		1		-		-		1		1		2		2		-		-		2		2
Colorado		12		12		24		25		36		37		12		12		23		24		35		36
Georgia		5		4		-		-		5		4		5		5		-		-		5		5
North Carolina		14		14		-		-		14		14		14		14		-		-		14		14
Oklahoma		1		1		-		-		1		1		1		1		-		-		1		1
South Carolina		3		3		-		-		3		3		4		3		-		-		4		3
Tennessee		2		2		-		-		2		2		2		2		-		-		2		2
Total		38		37		24		25		62		62		40		39		23		24		63		63

One company-owned Good Times restaurant closed, and the property was subleased during fiscal 2021.

Franchise/License

	Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total
	2022		2021		2022		2021		2022		2021
Colorado		-		-		6		6		6		6
North Carolina		1		1		-		-		1		1
South Carolina		-		1		-		-		-		1
Wyoming		-		-		2		2		2		2
Total		1		2		8		8		9		10

Non-Traditional^*

	Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total
	2022		2021		2022		2021		2022		2021
Colorado		1		-		-		-		1		-
Total		1		-		-		-		1		-

* The non-traditional Bad Daddy’s Burger Bar location is a location where we operate the kitchen under our Bad Daddy’s brand for a local brewery’s taproom.

1918

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~~Franchise/License:~~

Bad Daddy’s
Burger Bar Good Times Burgers
& Frozen Custard Total
2021 2020 2021 2020 2021 2020
Colorado - - 6 6 6 6
North Carolina 1 1 - - 1 1
South Carolina 1 1 - - 1 1
Wyoming - - 2 2 2 2
Total 2 2 8 8 10 10

Results of Operations

Fiscal quarter ended ~~June~~March 29, ~~2021~~2022 (13 weeks) compared to fiscal quarter ended ~~June~~March 30, ~~2020:~~2021 (13 weeks):

Net Revenues. Net revenues for the quarter ended ~~June~~March 29, ~~2021~~2022 increased ~~$9,589,000~~$4,405,000 or ~~39.4%~~15.1% to ~~$33,946,000~~$33,597,000 from ~~$24,357,000~~$29,192,000 for the quarter ended ~~June~~March 30, ~~2020.~~2021. Bad Daddy’s concept revenues increased ~~$9,554,000~~$4,495,000 while our Good Times concept revenues ~~increased $35,000.~~decreased $90,000.

Bad Daddy’s restaurant sales increased ~~$9,493,000~~$4,464,000 to ~~$24,408,000~~$25,447,000 for the quarter ended ~~June~~March 29, ~~2021~~2022 from ~~$14,915,000~~$20,983,000 for the quarter ended ~~June~~March 30, ~~2020.~~2021. This ~~includes sales~~increase is primarily due to increased traffic resulting from ~~delivery vendors~~rolling over covid restrictions and residual avoidance of ~~$4,150,000 for the quarter ended June 29, 2021, an increase of $51,000 from $4,099,000~~indoor dining during the quarter ended June 30, 2020. Comparatively, sales were positively impacted in the current quarter due to the effect of COVID-19 closures and restrictions during the prior-year quarter. During April and May 2020 all dining rooms were closed due to the COVID-19 pandemic. Most restaurants were reopened in June 2020 but with capacity restrictions. Sales were also positively impacted by the opening of one new restaurant in June 2021.prior year, as well as menu price increases. The average menu price increase for the quarter ended ~~June~~March 29, ~~2021~~2022 over the same prior-year quarter was approximately ~~3.2%~~6.2%.

Additionally, net revenues were increased by $61,000 in increased franchise royalties and license fees compared to the prior-year quarter primarily due to COVID-19 related capacity restrictions and reduced customer traffic at our airport licensee location during the prior-year quarter. Franchise revenues in the current and prior year quarters include franchisee advertising contributions of $4,000 and $3,000, respectively.

Good Times restaurant sales ~~increased $18,000~~decreased $95,000 to ~~$9,293,000~~$7,917,000 for the quarter ended ~~June~~March 29, ~~2021~~2022 from ~~$9,275,000~~$8,012,000 for the quarter ended ~~June~~March 30, ~~2020.~~2021. This decrease is primarily due to decreased traffic resulting from a shift of customer preference towards indoor dining compared to the prior year, partially offset by menu price increases. The average menu price increase for the quarter ended ~~June~~March 29, ~~2021~~2022 over the same prior-year quarter was approximately ~~4.5%~~8.2%.

Franchise revenues ~~increased $17,000 for~~were $233,000 in the quarter ended ~~June~~March 29, ~~2021,~~2022 compared to $197,000 in the ~~same prior year period. Franchise revenues for~~quarter ended March 30, 2021. This increase is primarily due to increased royalties at the ~~current~~Bad Daddy’s franchisee and ~~prior year quarters include franchisee advertising contributions of $71,000 and $64,000, respectively.~~licensee restaurants.

Same Store Sales

Sales store sales is a metric used in evaluating the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are calculated using all units open for at least eighteen full fiscal months and use the comparable operating weeks from the prior year to the current year quarter’s operating weeks.

Bad Daddy’s same store restaurant sales ~~for Company-owned restaurants~~ increased ~~61.4%~~15.5% during the quarter ended ~~June~~March 29, ~~2021~~2022 compared to the same thirteen-week period ended ~~June~~March 30, ~~2020~~2021 in the prior-year ~~quarter, substantially driven by COVID-19 related capacity~~quarter. This increase is primarily due to increased traffic resulting from rolling over covid restrictions and residual avoidance of indoor dining ~~room closures~~ during the ~~prior-year quarter.~~prior year, as well as menu price increases. There were ~~thirty-six~~thirty-seven restaurants included in the same store sales base at the end of the quarter.

Good Times same store restaurant sales ~~for Company-owned restaurants increased 2.9%~~decreased 0.9% during the quarter ended ~~June~~March 29, ~~2021~~2022 compared to the same thirteen-week period ended ~~June~~March 30, ~~2020~~2021 in the prior-year quarter. This decrease is primarily due to decreased traffic resulting from a shift of customer preference towards indoor dining compared to the prior year, partially offset by menu price increases. There were ~~twenty-four~~twenty-three restaurants included in the same store sales base at the end of the quarter.

Restaurant Operating Costs

Food and Packaging Costs. Food and packaging costs for the quarter ended ~~June~~March 29, ~~2021~~2022 increased ~~$2,943,000~~$2,251,000 to ~~$9,989,000 (29.6%~~$10,457,000 (31.3% of restaurant sales) from ~~$7,046,000 (29.1%~~$8,207,000 (28.3% of restaurant sales) for the quarter ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s food and packaging costs were ~~$7,257,000 (29.7%~~$7,972,000 (31.3% of restaurant sales) for the quarter ended ~~June~~March 29, ~~2021,~~2022, up from ~~$4,254,000 (28.5%~~$5,881,000 (28.0% of restaurant sales) for the quarter ended ~~June~~March 30, ~~2020.~~2021. This increase is primarily attributable to higher restaurant sales during the current quarter versus the same quarter in the prior year. The increase as a percent of sales is attributable ~~to menu mix shift from a limited menu~~the significant inflation noted during the ~~ongoing COVID-19 pandemic in the prior-year~~ quarter with most of our food and ~~improved cost on soft beverages during this time because refills were not available on off-premise sales.~~packaging products seeing meaningful unit price increases.

Good Times food and packaging costs were ~~$2,732,000 (29.4%~~$2,485,000 (31.4% of restaurant sales) for the quarter ended ~~June~~March 29, ~~2021, down~~2022, up from ~~$2,792,000 (30.1%~~$2,326,000 (29.0% of restaurant sales) for the quarter ended ~~June~~March 30, ~~2020.~~2021. This ~~decrease~~increase is primarily attributable ~~to is due primarily~~ to the impact of higher purchase prices on food and paper goods, partially offset by increased menu ~~pricing and menu engineering, which offset purchase price increases on our primary ingredients.~~

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pricing.

Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the quarter ended ~~June~~March 29, ~~2021~~2022 increased ~~$3,864,000~~$1,910,000 to ~~$11,261,000 (33.4%~~11,555,000 (34.6% of restaurant sales) from ~~$7,397,000 (30.6%~~$9,645,000 (33.3% of restaurant sales) for the quarter ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s payroll and other employee benefit costs were ~~$8,381,000~~$8,736,000 (34.3% of restaurant sales) for the quarter ended ~~June~~March 29, ~~2021,~~2022 up from ~~$4,788,000 (32.1%~~$6,996,000 (33.3% of restaurant sales) in the same prior year period. The ~~$3,593,000~~$1,740,000 increase is primarily attributable to ~~higher current-year staffing levels associated with higher~~increased labor hours to support increased restaurant ~~sales compared to the prior-year quarter. The increase as a percent of sales is primarily attributable to staffing reductions associated with the closure of our dining rooms~~guest counts during the ~~prior-year~~current quarter versus the same quarter in the prior year, as well as higher average ~~pay~~wage rates, ~~for hourly employees~~particularly in the ~~current quarter. The~~back of house. As a percent of sales, payroll and employee benefits costs increased by 1.0% primarily attributable to higher average wage rates paid to ~~our employees increased approximately 2.9% in the quarter ended June 29, 2021 compared to the same prior year period.~~attract qualified employees.

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Good Times payroll and other employee benefit costs were ~~$2,880,000 (31.0%~~$2,819,000 (35.6% of restaurant sales) in the quarter ended ~~June~~March 29, ~~2021,~~2022, up from ~~$2,609,000 (28.1%~~$2,649,000 (33.1% of restaurant sales) in the same prior-year period. ~~The~~This increase, both in nominal dollars and as measured as a percent of restaurant sales, iswas primarily attributable to higher average ~~pay~~wage rates ~~for hourly employees due to employment market challenges. The average wage~~ paid to ~~our employees increased approximately 10.2%~~attract qualified employees. These higher wages are in-part driven by a combination of the significant statutory wage increase in the ~~quarter ended June 29, 2021 compared to~~City and County of Denver and the ~~same prior year period.~~impact of the overall market for quick service restaurant employees.

Occupancy Costs. Occupancy costs for the quarter ended ~~June~~March 29, ~~2021~~2022 increased ~~$94,000~~$222,000 to ~~$2,183,000 (6.5%~~$2,377,000 (7.1% of restaurant sales) from ~~$2,089,000 (8.6%~~$2,155,000 (7.4% of restaurant sales) for the quarter ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s occupancy costs were ~~$1,485,000 (6.1%~~$1,679,000 (6.6% of restaurant sales) for the quarter ended ~~June~~March 29, 2021, consistent with $1,486,000 (10.0% of restaurant sales) in the same prior year period. The decrease as a percentage of sales was primarily due to the leveraging effect of increased restaurant sales.

~~Good Times occupancy costs were $698,000 (7.5% of restaurant sales) in the quarter ended June 29, 2021,~~2022, up ~~slightly~~ from ~~$603,000 (6.5%~~$1,413,000 (6.7% of restaurant sales) in the same prior year period. The increase was primarily attributable to ~~rent abatements in the prior-year quarter~~lease costs with newly opened restaurants and increased property tax assessments. The slight decrease as a percentage of ~~approximately $69,000 granted by various landlords~~sales was primarily due to the ~~COVID-19 pandemic.~~leveraging effect of higher restaurant sales.

Good Times occupancy costs were $698,000 (8.8% of restaurant sales) in the quarter ended March 29, 2022, down from $742,000 (9.3% of restaurant sales) in the same prior year period. The decrease was primarily attributable to property tax expense and end-of-term rent abatement associated with a lease termination agreement for one Good Times restaurant, as well as the assignment of one lease to a third party during 2021.

Other Operating Costs. Other operating costs for the quarter ended ~~June~~March 29, ~~2021~~2022, increased ~~$890,000~~$1,025,000 to ~~$3,730,000 (11.1%~~$4,667,000 (14.0% of restaurant sales) from ~~$2,840,000 (11.7%~~$3,642,000 (12.6% of restaurant sales) for the quarter ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s other operating costs were ~~$2,939,000 (12.0%~~$3,670,000 (14.4% of restaurant sales) for the quarter ended ~~June~~March 29, ~~2021~~2022 up from ~~$2,095,000 (14.1%~~$2,860,000 (13.6% of restaurant sales) in the same prior year period. The ~~$844,000~~ increase was primarily due to increased bank fees due to increased transaction volume in the quarter ended June 29, 2021 compared to the quarter ended June 30, 2020, as well as increased repair & maintenance costs. The percentage decrease was primarily attributable to higher overall sales. As a percent of sales, the ~~leveraging effect of~~increase is attributable to higher increased ~~sales volumes in the quarter ended June 29, 2021 compared to the prior-year quarter.~~spending on restaurant technology, higher repair and higher preventive maintenance expenses.

Good Times other operating costs were ~~$791,000 (8.5%~~$997,000 (12.6% of restaurant sales) in the quarter ended ~~June~~March 29, ~~2021,~~2022, up ~~slightly~~ from ~~$745,000 (8.0%~~$782,000 (9.7% of restaurant sales) in the same prior year period. The increase was primarily attributable to general price inflation in operating supplies costs and increases in commissions paid to delivery service providers due to increases in overall delivery sales.

New Store Preopening Costs. InThere were no preopening costs incurred during the quarter ended ~~June 29, 2021, we incurred $301,000 of preopening costs compared to $31,000 for the quarter ended June 30, 2020. All of the preopening costs are related to our Bad Daddy’s restaurants.~~

Preopening costs in the current quarter are related to one restaurant that opened in June 2021 and one that is slated for opening in September 2021. In the prior-year period, pre-opening costs were primarily attributable to $24,000 of non-cash operating lease costs associated with these same two future Bad Daddy’s restaurants. Preopening costs typically occur over a period of approximately five months although as a result of the pandemic we incurred pre-opening costs for an extended period of time associated with these two Bad Daddy’s restaurants. Although the exact timing varies by location, we typically spend approximately $275,000 to $350,000 per location, though these amounts may not accurately reflect preopening costs to be incurred with these two locations.March 29. 2022.

Depreciation and Amortization Costs. Depreciation and amortization costs for the quarter ended ~~June~~March 29, ~~2021, decreased $45,000~~2022, increased $83,000 to ~~$938,000~~$1,013,000 from ~~$983,000~~$930,000 in the quarter ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s depreciation and amortization costs for the quarter ended ~~June~~March 29, ~~2021 decreased $29,000~~2022 increased $96,000 to ~~$741,000~~$834,000 from ~~$770,000~~$738,000 in the quarter ended ~~June~~March 30, ~~2020.~~2021. This increase was primarily attributable to the two new restaurants opened in final quarter of fiscal 2021.

Good Times depreciation and amortization costs for the quarter ended ~~June~~March 29, ~~2021~~2022 decreased ~~$16,000~~$13,000 to ~~$197,000~~$179,000 from ~~$213,000~~$192,000 in the quarter ended ~~June~~March 30, ~~2020.~~2021.

General and Administrative Costs. General and administrative costs for the quarter ended ~~June~~March 29, ~~2021,~~2022, increased ~~$822,000~~$159,000 to ~~$2,505,000 (7.4%~~$2,577,000 (7.7% of total revenue) from ~~$1,683,000 (6.9%~~$2,418,000 (8.3% of total ~~revenues)~~revenue) for the quarter ended ~~June~~March 30, ~~2020.~~2021.

~~The $822,000~~This increase in general and administrative expenses in the quarter ended ~~June~~March 29, ~~2021~~2022 is primarily attributable to:

·●

~~Increase~~Increased costs in legal and professional services of ~~$542,000, primarily related to increased legal expenses~~$386,000

~~Increase in costs associated with district management of $114,000 primarily related to increased estimated performance-based bonus provisions and travel expenses~~

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·●

Decrease in ~~incentive stock compensation~~administrative related payroll and benefit costs of ~~$24,000~~$268,000, primarily related stock-based compensation recognized during the prior-year quarter associated with the vesting of restricted stock and stock options that had been awarded to the CEO in connection with the amendment of his employment agreement and reduced health insurance underwriting losses.

·●

~~Increase~~Reduced multi-unit management costs of ~~$55,000~~approximately $30,000, primarily related to ~~business insurance premiums~~reduced incentive compensation associated with lower restaurant- and district-level income

·●

~~Decrease~~Increased technology costs of ~~$23,000 related to prior fiscal year beverage consultant fees~~approximately $36,000

·●

~~Increase~~Increased insurance costs, primarily related with D&O, cyber, and EPL policies of ~~$52,000 related to training and recruiting costs~~approximately $23,000

·●

~~Increase~~Approximately $12,000 of ~~$52,000 related to payroll processing fees associated with a vendor transition~~

~~Increase of $34,000 related to computer and technology~~increased travel costs

~~Net increases in all other expenses of $20,000~~

For the balance of the fiscal year, we expect general and administrative costs to ~~continue~~trend similarly in nominal terms to ~~increase from fiscal 2020 due to increased insurance and health~~ costs ~~and as we make investments in new human resource and financial management systems.~~incurred during the current quarter.

Advertising Costs. Advertising costs for the quarter ended ~~June~~March 29, ~~2021 were $597,000 (1.8%~~2022, increased $302,000 to $812,000 (2.4% of total revenue)~~, up~~ from ~~$515,000 (2.1%~~$510,000 (1.7% of total revenue) for the quarter ended ~~June~~March 30, ~~2020.~~2021.

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Bad Daddy’s advertising costs were ~~$222,000 (0.9%~~$467,000 (1.8% of total revenue) in the quarter ended ~~June 30, 2021~~March 29, 2022 compared to ~~$142,000 (1.1%~~$186,000 (0.9% of total revenue) in the same prior year period. The increase ~~was~~is primarily ~~attributable~~due to ~~lower sales~~greater spending on physical menus and point-of-sale materials in the ~~prior-year~~current quarter versus the same prior year quarter when menus and point-of-sale merchandising materials were digital; recognition of commission earned by third parties on gift cards sold through large-box retailers; and a radio advertising campaign in Colorado. The current and prior year quarters each include advertising costs of $5,300 and $4,000 respectively, associated with franchise advertising contributions.

Good Times advertising costs were $345,000 (4.3% of total revenue) in the quarter ended March 29, 2022 compared to $324,000 (4.0% of total revenue) in the same prior year period. The slight increase is primarily due to decreased increased advertising expenditures in the current quarter versus the same prior year quarter. The current and prior year quarters include advertising costs of ~~$4,000~~$62,000 and ~~$3,000, respectively, associated with franchise advertising contributions.~~

Bad Daddy’s advertising costs consist primarily of contributions made to the Advertising Fund based on a percentage of restaurant sales as well as local store marketing efforts. Advertising Fund expenditures consist primarily of digital and social media as well as point-of-purchase marketing and merchandising materials.

Good Times advertising costs were $375,000 (4.0% of total revenue) in the quarter ended June 29, 2021 compared to $373,000 (4.0% of total revenue) in the same prior year period. The current and prior year quarters include advertising costs of $71,000 and $64,000,$60,000, respectively, of costs associated with franchise advertising contributions.

Good Times advertising costs consists primarily of contributions made to the ~~Advertising Fund~~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. 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 4.0% of total revenue for the Good Times segment.

Franchise Costs. Franchise costs were ~~$5,000~~$6,000 and ~~$6,000~~$12,000 for the quarters ended ~~June~~March 29, ~~2021~~2022 and ~~June~~March 30, ~~2020,~~2021, 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.

Impairment Costs. Costs related to the impairment of long-lived assets were $1,753,000 for the quarter ended March 29, 2022. Good Times Impairment costs for the quarter ended March 29, 2022 were $487,000 due to the asset impairments of two Good Times restaurants. Bad Daddy’s impairment costs for the quarter ended March 29, 2022 were $1,266,000 due to the impairment of one Bad Daddy’s restaurant.

Litigation Contingencies. The Company recorded a contingent loss of $332,000 during the second quarter ended March 29, 2022 related to in-process litigation. No similar losses were recorded during the same prior year quarter.

Gain on Restaurant Asset ~~Sale.~~Sales and Lease Termination. The gain on restaurant asset ~~disposals~~sales and lease termination for the ~~quarters~~quarter ended ~~June~~March 29, ~~2021 and June~~2022 was $43,000 compared to $10,000 for the quarter ended March 30, ~~2020 were $9,000 and $8,000, respectively.~~

~~The gain in both years~~2021. Approximately $35,000 of this is related to ~~deferred gains on previous sale lease-back transactions on two~~additional gain recognized associated with the lease termination at one Good Times ~~restaurants.~~

~~Impairment Costs.~~ ~~Impairment costs were $0~~restaurant after accounting for all closure and ~~$932,000 for the quarters ended June 29, 2021 and June 30, 2020, respectively. The costs in the prior-year quarter are related to one Bad Daddy’s restaurants’ assets that were impaired.~~disposal costs.

Income (Loss) from Operations. ~~Income~~Loss from operations was ~~$2,446,000~~$1,909,000 in the quarter ended ~~June~~March 29, ~~2021~~2022 compared to ~~$843,000~~income from operations of $1,603,000 in the quarter ended ~~June~~March 30, ~~2020.~~2021.

The change in the ~~income~~loss from operations for the quarter ended ~~June~~March 29, ~~2021~~2022 is ~~due~~ primarily due to matters discussed in the ~~"Net Revenues,” "Restaurant Operating Costs," "General and Administrative Costs”, “Advertising Costs” and “Impairment Costs”~~ sections above.

~~Gain on Debt Extinguishment.~~Other Income / Expense. ~~The gain on debt extinguishment~~Interest expense was $11,000 during the quarter ended March 29, 2022, primarily related to amortization of loan fees.

Provision for Income Taxes. Provision for income taxes was zero for the ~~quarters~~quarter ended ~~June~~March 29, 2021 and June 30, 2020 were $11,778,000 and $0, respectively. The gain in the current year is related to forgiveness of PPP loans by the SBA. The breakdown of the forgiveness amount by operating segment is as follows:2022.

Bad Daddy’s $ 8,963
Good Times 2,269
Corporate 546
$ 11,778

Net ~~Income.~~(Loss) Income. Net ~~income~~loss was ~~$14,158,000 and $641,000~~$1,920,000 for the ~~quarters~~quarter ended ~~June~~March 29, ~~2021 and June~~2022 compared to net income of $1,523,000 in the quarter ended March 30, ~~2020, respectively.~~2021.

The change from the quarter ended ~~June~~March 29, ~~2021~~2022 to the quarter ended ~~June~~March 30, ~~2020~~2021 was primarily attributable to the matters discussed in the ~~"Net Revenues," "Restaurant Operating Costs," "General and Administrative Costs", “Advertising Costs” and “Impairment Costs”~~relevant 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-venture restaurants.

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For the quarter ended ~~June~~March 29, ~~2021,~~2022, the income attributable to non-controlling interests was ~~$524,000~~$230,000 compared to ~~$352,000~~$426,000 for the quarter ended ~~June~~March 30, ~~2020.~~2021.

~~$263,000 of~~Of the current quarter’s income attributable to non-controlling interests, $157,000 is attributable to ~~the BDI~~Bad Daddy’s joint-venture restaurants, compared to ~~$74,000~~$244,000 in the same prior year period. This ~~$189,000 increase~~$87,000 decrease is primarily due to ~~increased restaurant level~~reduced restaurant-level profitability in the ~~current fiscal quarter. $261,000 of the current quarter’s income~~relevant restaurants; and $73,000 is attributable to the Good Times joint-venture restaurants, compared to ~~$278,000~~$182,000 in the same prior year period. This $109,000 decrease is primarily due to reduced restaurant-level profitability in the relevant restaurants.

Fiscal ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 (26 weeks) compared to fiscal ~~three~~two quarters ended ~~June~~March 30, ~~2020:~~2021 (26 weeks):

Net Revenues. Net revenues for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 increased ~~$9,081,000~~$10,025,000 or ~~11.2%~~17.7% to ~~$90,434,000~~$66,513,000 from ~~$81,353,000~~$56,488,000 for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021. Bad Daddy’s concept revenues increased ~~$7,064,000~~$10,414,000 while our Good Times concept revenues ~~increased $2,017,000.~~decreased $389,000.

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Bad Daddy’s restaurant sales increased ~~$7,054,000~~$10,364,000 to ~~$64,082,000~~$50,037,000 for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 from ~~$57,028,000~~$39,673,000 for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021. This ~~includes sales from delivery vendors of $12,485,000 for the three quarters ended June 29, 2021, an~~ increase ~~of $5,900,000 from $6,585,000 during the three quarters ended June 30, 2020. The increase in sales~~ is primarily due to ~~the negative impact~~increased traffic resulting from rolling over covid restrictions and residual avoidance of ~~our~~indoor dining ~~room closures due to the COVID-19 pandemic in~~during the prior ~~fiscal~~ year, ~~and the opening of one new restaurant in June 2021, partially offset by the positive impact of the 53~~^rd ~~week of the prior fiscal year. We estimate the impact of the extra week of sales to be approximately $2,015,000.~~as well as menu price increases. The average menu price increase for the ~~three~~two quarters ended ~~June 30, 2020~~March 29, 2022 over the same prior-year ~~three quarters~~quarter was approximately ~~3.9%~~5.5%. Franchise revenues increased $10,000 for the three quarters ended June 29, 2021, compared to the same prior year period. Franchise revenues for the current and prior year periods include franchisee advertising contributions of $11,000 and $9,000, respectively.

Good Times restaurant sales ~~increased $1,942,000~~decreased $400,000 to ~~$25,695,000~~$16,003,000 for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 from ~~$23,753,000~~$16,403,000 for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021. This decrease is primarily due to decreased traffic resulting from a shift of customer preference towards indoor dining compared to the prior year, partially offset by menu price increases. The average menu price increase for the ~~three~~two quarters ended ~~June 30, 2020~~March 29, 2022 over the same prior-year ~~three quarters~~quarter was approximately ~~4.5%~~7.2%.

Franchise revenues ~~increased $75,000 for~~were $473,000 in the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022 compared to $412,000 in the ~~same prior year period. Franchise revenues for~~two quarters ended March 30, 2021. This increase is primarily due to increased royalties at the ~~current~~Bad Daddy’s franchisee and ~~prior year periods include franchisee advertising contributions of $194,000 and $167,000, respectively.~~licensee restaurants attributable to increased sales.

Same Store Sales

Bad Daddy’s same store restaurant sales ~~for Company-owned restaurants~~ increased ~~16.4%~~19.5% during the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 compared to the same thirteen-week period ended March 30, 2021 in the prior-year ~~three quarters.~~quarter. This increase is primarily due to increased traffic resulting from rolling over covid restrictions and residual avoidance of indoor dining during the prior year, as well as menu price increases. There were ~~thirty-six~~thirty-seven restaurants included in the same store sales base at the end of the quarter.

Good Times same store restaurant sales ~~for Company-owned restaurants increased 22.5%~~decreased 1.7% during the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 compared to the same thirteen-week period ended March 30, 2021 in the prior-year ~~three quarters.~~quarter. This decrease is primarily due to decreased traffic resulting from a shift of customer preference towards indoor dining compared to the prior year, partially offset by menu price increases. There were ~~twenty-four~~twenty-three restaurants included in the same store sales base at the end of the quarter.

Restaurant Operating Costs

Food and Packaging Costs. Food and packaging costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 increased ~~$1,788,000~~$4,635,000 to ~~$26,037,000 (29.0%~~$20,683,000 (31.3% of restaurant sales) from ~~$24,249,000 (30.0%~~$16,048,000 (28.6% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s food and packaging costs were ~~$18,494,000 (28.9%~~$15,784,000 (31.5% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022, up from ~~$16,981,000 (29.8%~~$11,237,000 (28.3% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021. This ~~decrease~~increase is primarily attributable to higher restaurant sales during the two quarters versus the same period in the prior year. The increase as a percent of sales is attributable ~~to increased pricing charged on sales through third-party delivery services, typically at a 10% to 20% premium to purchases made in-store or through~~the significant inflation noted during the quarter with most of our ~~online ordering system.~~food and packaging products seeing meaningful unit price increases.

Good Times food and packaging costs were ~~$7,543,000 (29.4% of restaurant sales) for the three quarters ended June 29, 2021, up from $7,268,000~~$4,899,000 (30.6% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 29, 2022, up from $4,811,000 (29.3% of restaurant sales) for the two quarters ended March 30, ~~2020. This decrease~~2021. The increase as a percent of sales is due primarily to the impact of higher purchase prices on food and paper goods, partially offset by increased menu ~~pricing and menu engineering, which offset purchase price increases on our primary ingredients.~~pricing.

Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 increased ~~$490,000~~$4,206,000 to ~~$29,787,000 (29.0%~~22,732,000 (34.4% of restaurant sales) from ~~$29,297,000 (36.3%~~$18,526,000 (33.0% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s payroll and other employee benefit costs were ~~$21,644,000 (33.8%~~$17,154,000 (34.3% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022 up from ~~$21,188,000 (37.2%~~$13,263,000 (33.4% of restaurant sales) in the same prior year period. The ~~$456,000~~$3,891,000 increase is primarily attributable to greater hours to support increased ~~restaurant sales~~guests at restaurants during the ~~three quarters ended June 29, 2021 as compared to~~current year versus the same prior year period, ~~partially offset by the additional week of operations in the prior year year period. The decrease~~ as well as higher average pay rates. As a percent of sales, ispayroll and employee benefits costs increased by 0.9% primarily attributable to staffing reductions associated with the closure of our Colorado dining rooms from late November 2020 through early January 2021, offset by pay rate increases for hourly employees in the current year and staffing reductions associated with dining room closures in the prior year.

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higher average wage rates paid to attract qualified employees.

Good Times payroll and other employee benefit costs were ~~$8,143,000 (31.7%~~$5,578,000 (34.9% of restaurant sales) in the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022, up ~~slightly~~ from ~~$8,109,000 (34.1%~~$5,263,000 (32.1% of restaurant sales) in the same prior-year period. The ~~decrease~~$315,000 increase, both in nominal dollars and as measured as a percent of restaurant sales, ~~is primarily~~was attributable to higher average wage rates paid to attract qualified employees. These higher wages are in-part driven by a combination of the ~~leveraging~~significant statutory wage increase in the City and County of Denver and the impact of ~~sales and price increases.~~the overall market for quick service restaurant employees.

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Occupancy Costs. Occupancy costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021 decreased $206,000~~2022 increased $355,000 to ~~$6,533,000 (7.3%~~$4,705,000 (7.1% of restaurant sales) from ~~$6,739,000 (8.3%~~$4,350,000 (7.5% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s occupancy costs were ~~$4,352,000 (6.8%~~$3,327,000 (6.6% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 29, ~~2021 down~~2022, up from ~~$4,600,000 (8.1%~~$2,867,000 (7.2% of restaurant sales) in the same prior year period. The increase was primarily attributable to lease costs with newly opened restaurants and increased property tax assessments. The decrease as a percentage of sales was primarily due to the leveraging effect of ~~increased~~higher restaurant sales.

Good Times occupancy costs were ~~$2,181,000 (8.5%~~$1,378,000 (8.6% of restaurant sales) in the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022, down from ~~$2,139,000~~$1,483,000 (9.0% of restaurant sales) in the same prior year period. The decrease was primarily attributable to decreases in property tax expense and end-of-term rent abatement associated with a lease termination agreement for one good times restaurant, as well as the assignment of one lease to a third party during 2021.

Other Operating Costs. Other operating costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022, increased ~~$2,042,000~~$1,694,000 to ~~$10,841,000 (12.1%~~$8,805,000 (13.3% of restaurant sales) from ~~$8,799,000 (10.9%~~$7,111,000 (12.7% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s other operating costs were ~~$8,448,000 (13.2%~~$6,955,000 (13.9% of restaurant sales) for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 up from ~~$6,675,000 (11.7%~~$5,509,000 (13.9% of restaurant sales) in the same prior year period. The ~~$1,773,000~~$1,424,000 increase was ~~primarily due~~attributable to an increase in commissions paid to delivery service providers in the three quarters ended June 29, 2021 compared to the prior year period. The percentage increase was primarily attributable a significant shift in delivery sales as a percentage ofhigher overall ~~sales during the COVID-19 pandemic.~~sales.

Good Times other operating costs were ~~$2,393,000 (9.3%~~$1,850,000 (11.6% of restaurant sales) in the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022, up from ~~$2,124,000 (8.9%~~$1,602,000 (9.8% of restaurant sales) in the same prior year period. The increase was primarily attributable to ~~an increase~~general price inflation in supplies costs and increases in commissions paid to delivery service providers due to increases in ~~the three quarters ended June 29, 2021 compared to the prior year period.~~overall delivery sales.

New Store Preopening Costs. In Preopening costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021, we incurred $420,000 of preopening costs compared~~2022 decreased $69,000 to ~~$992,000 for~~$50,000 from $119,000 in the ~~three~~two quarters ended ~~June 30,2020.~~March 30. 2021. All of the ~~preopening costs are related to our Bad Daddy’s restaurants.~~

~~Preopening~~ costs in the current ~~quarter are~~year were related to ~~one~~a Bad Daddy’s restaurant opened near the end of fiscal 2021. The costs in the prior year were related to Bad Daddy’s restaurants that opened in ~~June 2021 and one that is slated for opening in September~~ 2021. In the prior-year period, pre-opening costs are primarily attributable to four restaurants: two that opened late during the fourth quarter of fiscal 2019, and two restaurants that opened during the first fiscal quarter of 2020. In addition, the prior three quarters included $132,000 of non-cash operating lease costs associated with the two Bad Daddy’s restaurants opening in the current fiscal year. Preopening costs typically occur over a period of approximately five months. Although the exact timing varies by location, we typically spend approximately $275,000 to $350,000 per location.

Depreciation and Amortization Costs. Depreciation and amortization costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021 decreased $378,000~~2022, increased $138,000 to ~~$2,797,000~~$1,997,000 from ~~$3,175,000~~$1,859,000 in the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

Bad Daddy’s depreciation and amortization costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021 decreased $320,000~~2022 increased $143,000 to ~~$2,216,000~~$1,618,000 from ~~$2,536,000~~$1,475,000 in the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021. This ~~decrease~~increase was primarily ~~due~~attributable to ~~reduced depreciation resulting from asset impairment charges recorded~~the two new restaurants opened in ~~the prior~~final quarter of fiscal ~~year.~~2021.

Good Times depreciation and amortization costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022 decreased ~~$58,000~~$5,000 to ~~$581,000~~$379,000 from ~~$639,000~~$384,000 in the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

General and Administrative Costs. General and administrative costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022, increased ~~$1,773,000~~$690,000 to ~~$7,097,000~~$5,282,000 (7.9% of total revenue) from ~~$5,324,000 (6.5%~~$4,592,000 (8.1% of total revenue) for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

~~The $1,773,000~~This increase in general and administrative expenses in the ~~quarter~~two quarters ended ~~June~~March 29, ~~2021~~2022 is primarily attributable to:

·●

~~Increase in professional services of $902,000 primarily related to increased legal fees~~

~~Increase~~Decrease in administrative related payroll and benefit costs of ~~$572,000~~$463,000 primarily related to ~~a $222,000 increase~~the prior-year one-time bonus awarded to the CEO during the two quarters ended March 30, 2021 in ~~estimated incentive compensation as of quarter-end and excess claims costs on the company’s partially self-insured health care plan, primarily attributable to claims associated~~connection with the ~~plan year ending December 2020~~amendment of his employment agreement and reduced health insurance underwriting losses, partially offset by increased administrative salaries and wages.

·●

Increase in costs associated with ~~district~~multi-unit management of ~~$161,000~~$96,000 primarily related to increased ~~estimated performance-based bonus provisions~~multi-unit travel costs and incentive compensation

·●

Increase in ~~incentive stock compensation~~professional services of $529,000, primarily attributable to increased legal costs ~~of $103,000 related to options and restricted stock units granted to our Directors and Chief Executive Officer~~

·●

Increase of ~~$164,000 related to business insurance premiums~~$61,000 in recruiting and travel costs primarily associated with training managers for Bad Daddy’s restaurants

·●

~~Decrease~~Increase of ~~$106,000 related to~~$91,000 associated with in-person restaurant general managers’ conference held in the current year that had not been held in the prior ~~fiscal~~ year ~~beverage consultant~~

●

Increase of $198,000 for professional services and various banking and other vendor fees

·●

~~Decrease~~Increased technology costs of ~~$53,000~~$116,000 primarily attributable to expenses related to ~~vendor fee income~~maintenance of mobile applications and ~~early pay discounts~~financial reporting systems, as well as costs associated with additional administrative personnel

·●

Increase of ~~$77,000 related to travel~~$49,000 for office lease and ~~entertainment costs~~equipment expenses

~~Decrease of $65,000 related to training and recruiting costs~~

·●

Increase ~~of $48,000 related to payroll processing fees associated with a vendor transition~~

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~~Increase of $53,000 related to computer and technology costs~~

~~Decrease of $61,000 related to preliminary site costs~~

~~Net decreases~~ in ~~all~~ other expenses of ~~$22,000~~approximately $13,000 including increased D&O, cyber, and EPL insurance policies, increased general travel, partially offset by lower costs in other categories

For the balance of the fiscal year, we expect general and administrative costs to continue to increase from fiscal 2020 due to increased insurance and health costs, and as we make investments in new human resource and financial management systems, and as we compare against temporary salary reductions made during fiscal 2020 in connection with actions taken amid the initial COVID-19 dining room closures.

Advertising Costs. Advertising costs for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022, increased ~~$45,000~~$434,000 to ~~$1,616,000 (1.8%~~$1,453,000 (2.2% of total revenue) from ~~$1,571,000 (1.9%~~$1,019,000 (1.8% of total revenue) for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

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Bad Daddy’s advertising costs were ~~$575,000 (0.9%~~$781,000 (1.6% of total revenue) in the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 compared to $617,000 (1.1% of total revenue) in the same prior year period. The decrease was primarily attributable to $52,000 in costs incurred in the prior year three quarters related to a local radio advertising campaign in the Charlotte, North Carolina area. The current and prior year three quarters include advertising costs of $11,000 and $9,000, respectively, associated with franchise advertising contributions.

~~Good Times advertising costs were $1,041,000 (4.0% of total revenue) in the three quarters ended June 29, 2021 compared to $954,000 (3.9%~~$353,000 (0.9% of total revenue) in the same prior year period. The increase is primarily due to ~~increased sales~~greater spending on physical menus and point-of-sale materials in the current quarter versus the same prior year ~~quarter.~~quarter when menus and point-of-sale merchandising materials were digital; recognition of commission earned by third parties on gift cards sold through large-box retailers; and a radio advertising campaign in Colorado. The current and prior year quarters each include advertising costs of $9,000 and $7,000 respectively, associated with franchise advertising contributions.

Good Times advertising costs were $672,000 (4.1% of total revenue) in the two quarters ended March 29, 2022 compared to $666,000 (4.0% of total revenue) in the same prior year period. The current and prior year quarters include advertising costs of ~~$275,000~~$127,000 and ~~$235,000,~~$123,000, respectively, of costs associated with franchise advertising contributions.

Good Times advertising costs consists primarily of contributions made to the ~~Advertising Fund~~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 4.0% of total revenue for the Good Times segment.

Franchise Costs. Franchise costs were ~~$22,000~~$11,000 and ~~$14,000~~$17,000 for the ~~three~~ quarters ended ~~June~~March 29, ~~2021~~2022 and ~~June~~March 30, ~~2020,~~2021, 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.

Impairment Costs.

Costs related to the impairment of long-lived assets were $1,753,000 for the quarter ended March 29, 2022. Good Times Impairment costs for the two quarters ended March 29, 2022 were $487,000 due to the asset impairments of two Good Times restaurants. Bad Daddy’s impairment costs for the two quarters ended March 29, 2022 were $1,266,000 due to the impairment of one Bad Daddy’s restaurant.

Gain on Restaurant Asset ~~Sale.~~Sales and Lease Termination. The gain on restaurant asset ~~disposals~~sales and lease termination for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 was ~~$28,000~~$657,000 compared to ~~$36,000 in~~$19,000 for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~

$28,000 of the gain in each of the current year and prior year was related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The additional gain of $8,000 in the prior year is2021, primarily related to the ~~sale~~termination of ~~miscellaneous restaurant equipment.~~

~~Impairment Costs:~~ ~~Impairment costs were $0 and $15,291,000 for the three quarters ended June 29, 2021 and June 30, 2020, respectively. $5,291,000~~a lease of the costs in the prior year period 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.a good times restaurant.

Income (Loss) from Operations. ~~Income~~Loss from operations was ~~$5,311,000~~$633,000 in the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 compared to ~~a loss~~income from operations of ~~$14,062,000~~$2,866,000 in the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

The change in the ~~income (loss)~~loss from operations for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 is ~~due~~ primarily due to matters discussed in the ~~"Net Revenues,” "Restaurant Operating Costs," "General and Administrative Costs," “Advertising Costs” and “Impairment Costs”~~relevant sections above.

~~Gain on Debt Extinguishment.~~Other Income / Expense. ~~The gain on debt extinguishment for~~Interest expense was $29,000 during the ~~three~~two quarters ended ~~June~~March 29, ~~2021 and June~~2022 compared to $178,000 in the two quarters ended March 30, ~~2020 were $11,778,000 and $0, respectively.~~2021. The ~~gain~~decrease is primarily due to the absence of borrowing in the current year, iscompared to borrowings against the Cadence Credit Facility during the same two quarters ended in the prior year.

Litigation Contingencies. The Company recorded a contingent loss of $332,000 during the two quarters ended March 29, 2022 related to ~~forgiveness of PPP loans by~~in-process litigation. No similar losses were recorded during the ~~SBA. The breakdown of the forgiveness amount by operating segment is as follows:~~same prior year period.

Bad Daddy’s $ 8,963
Good Times 2,269
Corporate 546
$ 11,778

Provision for Income Taxes. Provision for income taxes was $8,000 for the two quarters ended March 29, 2022.

Net Income (Loss). Net ~~income~~loss was ~~$16,846,000~~$670,000 for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 compared to a net ~~loss~~income of ~~$14,700,000~~$2,688,000 in the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

The change infrom the ~~net income (loss) for the three~~two quarters ended ~~June~~March 29, 2022 to the two quarters ended March 30, 2021 was primarily attributable to the matters discussed in the ~~"Net Revenues," "Restaurant Operating Costs," "General and Administrative Costs," “Advertising Costs” and “Impairment Costs”~~relevant sections ~~above as well as a decrease in net interest expense of $394,000 for the three quarters ended June 29, 2021 compared to the same prior year period.~~

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above.

For the ~~three~~two quarters ended ~~June~~March 29, ~~2021,~~2022, the income attributable to non-controlling interests was ~~$1,313,000~~$1,150,000 compared to ~~$738,000~~$789,000 for the ~~three~~two quarters ended ~~June~~March 30, ~~2020.~~2021.

~~$688,000 of~~Of the ~~current three quarters’~~two quarter’s income attributable to non-controlling interests, $840,000 is attributable to ~~the BDI~~Bad Daddy’s joint-venture restaurants, compared to ~~$319,000~~$425,000 in the same prior year ~~period. This $369,000 increase is primarily due to increased restaurant level profitability in the current three fiscal quarters. $625,000 of the current three quarters’ income~~period and $310,000 is attributable to the Good Times joint-venture restaurants, compared to ~~$419,000~~$364,000 in the same prior year period. Income attributable to non-controlling interests for Bad Daddy’s includes a one-time special allocation to the non-controlling partners in these partnerships of approximately $516,000 related to a rebate of payroll costs, partially offset by slightly decreased restaurant level profitability in the current fiscal quarter.

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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.

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.

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The following table reconciles net income/loss to EBITDA and Adjusted EBITDA (in thousands) for the second fiscal quarter and year-to-date:

	Quarter Ended						Year-to-Date						Quarter Ended						Year-to-Date
	June 29, 2021 (13 Weeks)			June 30, 2020 (13 Weeks)			June 29, 2021 (39 Weeks)			June 30, 2020 (40 Weeks)			March 29, 2022 (13 Weeks)			March 30, 2021 (13 Weeks)			March 29, 2022 (26 Weeks)			March 30, 2021 (26 Weeks)
Adjusted EBITDA:
Net income (loss), as reported	$	13,634		$	289		$	15,533		$	(15,438	)
Net Income (Loss), as reported													$	(2,150	)	$	1,097		$	(1,820	)	$	1,899
Depreciation and amortization		925			968			2,745			3,140			977			911			1,982			1,820
Interest expense, net		67			202			245			638			11			80			29			178
Provision for income taxes														0			-			8			-
EBITDA		14,626			1,459			18,523			(11,660	)		(1,161	)		2,088			199			3,897
Preopening expense		301			31			420			992			-			80			50			119
Non-cash stock-based compensation		50			74			326			223			52			214			147			276
Non-recurring severance costs		-			-			-			41
GAAP rent-cash cash difference		(108	)		(95	)		(280	)		(118	)
Gain on disposal of assets		(9	)		(8	)		(28	)		(36	)
Asset impairment charge		-			932			-			15,291
Gain on debt extinguishment		(11,778	)		-			(11,778	)		-
Asset Impairment														1,753			-			1,753			-
GAAP rent-cash rent difference														(110	)		(84	)		(182	)		(172	)
Loss (Gain) on restaurant asset sales and lease termination														(35	)		(10	)		(519	)		(19	)
One-time special allocation to Bad Daddy’s partnerships														-			-			516			-
Litigation contingencies														332			-			332			-
Adjusted EBITDA	$	3,082		$	2,393		$	7,183		$	4,733		$	832		$	2,288		$	2,296		$	4,101

Depreciation and amortization expense ~~have~~has been reduced by amounts attributable to non-controlling interests of ~~$49,000~~$66,000 and $46,000 for ~~each respective quarter~~the quarters ended March 29, 2022 and ~~$95,000~~March 30, 2021, respectively.

Loss (Gain) on restaurant asset sales and lease termination has been reduced by amounts attributable to non-controlling interests of $8,100 and zero for ~~each respective year-to-date period.~~the quarters ended March 29, 2022 and March 30, 2021, respectively.

Liquidity and Capital Resources

~~As of June 29, 2021, our cash~~Cash and cash equivalents were $10.3 million, a meaningful cash balance, and we generated significant cash flow from operations during the first three quarters of fiscal 2021. As described below, we plan to spend a significant portion of this cash to repurchase Company shares via a tender offer. In addition, as of June 29, 2021, we had total commitments outstanding of $431,000 related to a construction contract for one Bad Daddy’s restaurant currently under development. While we believe that we will continue to have adequate working capital following the tender offer, as described below, should business decline significantly as a result of the pandemic or otherwise, we would not likely choose to, and we may not be able to, take some of the same actions we took to increase our liquidity during fiscal 2020, such as temporarily reducing employee pay, reducing our workforce, and obtaining PPP loans, due to the negative impact on the long-term performance of the business as well as the uncertain availability of PPP loans in the future. Furthermore, the COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts.Working Capital

As of ~~June~~March 29, ~~2021,~~2022, we had a working capital deficit of $1,215,000. Historically, we have operated successfully with a negative working capital balance, because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment on inventories.$708,000. Our working capital position 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. This benefit may increase when new Bad Daddy’s and Good Times restaurants are opened. However, beginning in the first quarter of fiscal 2021 we have voluntarily shortened the period for payment to certain vendors in order to take advantage of early pay discounts, and this had the effect of increasing our working capital needs. Although we have ~~two~~negotiated payment terms of up to four weeks ~~to pay~~with many of our vendors, we ~~chose to start paying~~pay our primary foodservice vendors on 1-3 day payment terms to take advantage of early pay ~~discounts.~~discounts and generally pay most outstanding accounts payable upon review for accuracy and validity. In addition, our working capital position includes the recognition of the current portion of lease liabilities as we lease substantially all of our real estate and have both short-term and long-term obligations to our landlords. We believe that we will have sufficient capital to meet our working capital, ~~long term debt obligations~~recurring operating costs and recurring capital expenditure needs throughout fiscal ~~2021. However, our ability~~2023. As of March 29, 2022, we had no commitments related to construction contracts for any restaurants currently under development.

The Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue ~~to meet these requirements~~until the maximum value of shares is achieved or the Company terminates the program. The timing and ~~obligations~~actual number of shares repurchased will depend on ~~among other things, our ability to achieve anticipated levels~~a variety of ~~revenue~~factors, including price, general business and ~~cash flow~~market conditions, and ~~our ability to manage costs and working capital successfully.~~

~~Tender Offer~~

alternative investment opportunities. As ~~noted above and previously announced, we expect to expend a significant portion~~ of ~~our cash and cash equivalents to repurchase~~March 29, 2022 the Company has repurchased 75,900 shares of its common stock in a maximum amount of up to $6.5 million, at a cash price of $4.60 per share of common stock, by means of a tender offer (the “Tender Offer”). Our Board of Directors believes that the Tender Offer is an appropriate mechanism to return capital to our shareholders while also allowing those shareholders who do not participate in the tender offer to share in a higher portion of our future potential. The Tender Offer is expected to commence on August 13, 2021 or soon thereafter and to remain open for twenty business days, and unless the tender offer is terminated or extended, it is likely that payment for tendered shares will be made shortly before the end of the fiscal year. The tender offer will have a material impact on our liquidity. See above for more information about our liquidity and working capital needs.

~~Table of Contents~~

Neither the Company, its directors or officers, nor the depositary make any recommendation as to whether to tender shares. This disclosure is not a recommendation to buy or sell the Company’s common stock, and does not constitute an offer to buy or the solicitation of an offer to sell common shares of the Company. The Tender Offer has not yet commenced, and there can be no assurances that the Company will commence the Tender Offer on the terms described herein or at all. The tender offer will be made only pursuant to ~~an offer to purchase, letter of transmittal and related materials (“Tender Offer Materials”) that~~ the ~~Company expects to distribute to its shareholders and file with~~share repurchase plan leaving $4,669,767 available for repurchases under the Securities and Exchange Commission (“SEC”) upon commencement of the tender offer. SHAREHOLDERS ARE URGED TO CAREFULLY READ THE TENDER OFFER MATERIALS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. IF AND WHEN THE TENDER OFFER COMMENCES, SHAREHOLDERS CAN OBTAIN FREE COPIES OF THE TENDER OFFER MATERIALS FROM THE SEC AT WWW.SEC.GOV OR BY CALLING THE COMPANY’S INFORMATION AGENT (TO BE IDENTIFIED AT THE TIME THE OFFER IS MADE) FOR THE TENDER OFFER.plan.

Financing

Cadence Credit Facility

The Company maintains a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence has agreed to loan the Company up to ~~$11,000,000~~$8,000,000 with a maturity date of January 31, 2023 ~~(the~~(as amended, the “Cadence Credit Facility”). On February 21, 2019 the Cadence Credit Facility was amended, in connection with the 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 certain “Restricted Payments” (as defined in the Cadence Credit Facility). On January 8, 2021, the Cadence Credit Facility was amended to eliminate certain installment payments; reduce the commitment immediately to $11.0 million with reductions to $10.0 million and $8.0 million on March 31, 2021, and July 1, 2021, respectively; revise certain financial covenants; provide a mechanism for a transition from LIBOR to an alternate benchmark rate; and extend the maturity date to January 31, 2023. As amended by the various amendments, the Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. As of ~~June~~March 29, ~~2021,~~2022, any borrowings under the Cadence Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate, which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence ~~bank publicly-announced~~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~~elects to pay interest based on the base rate and at the end of each LIBOR period if it ~~selects~~elects to pay interest based on LIBOR. The Cadence Credit Facility, includes provisions for the Administrative Agent of the facility to amend the facility to replace LIBOR with an alternate benchmark rate, which may be (but is not required to be) SOFR, at such point in time when appliable LIBOR rates are no longer available or no longer reliable. The exact timing of any transition of LIBOR to an alternate benchmark rate is not currently known.

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As of ~~June~~March 29, ~~2021,~~2022, the Cadence Credit Facility, ~~as amended,~~ contains certain affirmative and negative covenants and events of default that the Company considers customary for an agreement of this type, including covenants setting a maximum leverage ratio of 5.15:1, a minimum pre-distribution fixed charge coverage ratio of 1.25:1, a minimum post-distribution fixed charge coverage ratio of 1.10:1 and minimum liquidity of $2.0 million. As of ~~June~~March 29, ~~2021,~~2022, the Company was in compliance with all financial covenants under the Cadence Credit Facility.

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~~March 29, ~~2021,~~2022, there ~~was~~were no outstanding ~~balance on~~ borrowings against the facility. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of March ~~30, 2021, the~~29, 2022, there were no outstanding ~~face value of such~~ letters of credit ~~was $157,500.~~

~~Paycheck Protection Program Loans~~

In June 2021, the SBA approved forgiveness in full of the Company’s Loan as well as the Loans of the Company’s subsidiaries, including accrued interest, in the aggregate amount of $11,778,226, which was recognized as a gain on debt extinguishment in the fiscal quarter ended June 29, 2021. The principal and accrued interest balance on each of these Loans is now zero, as of the forgiveness date specific to each of the Company’s and its subsidiaries’ Loans.facility.

Cash Flows

Net cash provided by operating activities was ~~$7,386,000~~$1,312,000 for the ~~three~~two quarters ended ~~June~~March 29, ~~2021. This~~2022. The net cash used in operating activities for the two quarters ended March 29, 2022 was the result of net ~~income~~loss of ~~$16,846,000 offset by~~$670,000 as well as cash and non-cash reconciling items totaling ~~$9,460,000.~~$1,982,000. These reconciling items are primarily comprised of 1) depreciation and amortization of general assets of ~~$2,920,000,~~$2,114,000, 2) amortization of operating lease assets of ~~$2,631,000,~~$1,751,000, 3) impairment of long-lived assets of $1,753,000 4) stock-based compensation expense of $147,000 5) a gain on lease termination and deferred gain on sale/leaseback of restaurants of $657,000, 6) A decrease in ROU assets of $39,000, 7) Income tax provision of $8,000, 8) an increase in prepaids of $1,176, primarily attributable to an in prepaid rent, 9) an increase in accrued expenses of $395,000, 10) a decrease in accounts payable of $370,000, 11) a net decrease in amounts related to our operating lease liabilities of $1,976,000 and 12) An increase of $46,000 in inventory and other receivables.

Net cash provided by operating activities was $3,232,000 for the two quarters ended March 30, 2021. The net cash provided by operating activities for the two quarters ended March 30, 2021 was the result of net income of $2,688,000 as well as cash and non-cash reconciling items totaling $544,000. These reconciling items are primarily comprised of 1) depreciation and amortization of general assets of $1,938,000, 2) amortization of operating lease assets of $1,660,000, 3) stock-based compensation expense of ~~$327,000,~~$276,000, 4) ~~gain on debt forgiveness of $11,778,000, 5)~~ an increase in receivables and other assets of ~~$82,000, 6) an increase~~$393,000, 5) a decrease in deferred liabilities and accrued expenses of ~~$264,000, 7)~~$237,000, 6) a decrease in accounts payable of ~~$820,000~~$860,000 and 8)7) a net decrease in amounts related to our operating leases of ~~$2,922,000.~~

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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.$1,821,000.

Net cash used in investing activities for the ~~three~~two quarters ended ~~June~~March 29, ~~2021~~2022 was ~~$2,085,000~~$1,905,000 which primarily reflects the general purchases of property and equipment of ~~$2,098,000.~~$1,177,000 and an acquisition of a restaurant from franchisee, net of cash acquired, for $728,000. Purchases of property and equipment is comprised of the following:

·●

$~~1,136,000 in costs for the development of Bad Daddy’s locations~~

~~$486,000~~856,000 for miscellaneous capital expenditures related to our existing Bad Daddy’s restaurants, including the payment of amounts in accounts payable at September 29, 2021 associated with the construction of one new Bad Daddy’s restaurant near the end of fiscal 2021

·●

$~~82,000 in costs related to remodeling of one Good Times location~~

~~$190,000~~120,000 for miscellaneous capital expenditures related to our existing Good Times restaurants

·●

$~~204,000~~201,000 for miscellaneous capital expenditures related to our ~~corporate office~~restaurant support center, primarily initial development costs for the computer software underlying our two brands’ mobile apps and automotive assets used by our internal maintenance team

Net cash used in investing activities for the ~~three~~two quarters ended ~~June~~March 30, ~~2020~~2021 was ~~$2,305,000~~$1,171,000 which primarily reflects the purchases of property and equipment of ~~$2,294,000 proceeds from the sale of fixed assets of $55,000 and the purchase of treasury stock of $75,000.~~$1,184,000. Purchases of property and equipment is comprised of the following:

·●

$~~2,065,000~~648,000 in costs for the development of Bad Daddy’s locations

·●

$~~106,000~~311,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants

·●

$~~90,000~~18,000 in costs related to remodeling of one Good Times location

●

$144,000 for miscellaneous capital expenditures related to our Good Times restaurants

·●

$~~33,000~~63,000 for miscellaneous capital expenditures related to our corporate office

Net cash used in financing activities for the ~~three~~two quarters ended ~~June~~March 29, 2022 was $1,197,000, which includes distributions to non-controlling interests of $956,000, payment for the repurchase of the Company’s common stock of $331,000 and proceeds from stock option exercise of $90,000.

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Net cash used in financing activities for the two quarters ended March 30, 2021 was ~~$6,454,000,~~$2,311,000, which includes principal payments on notes payable and long-term debt of ~~$5,500,000,~~$2,000,000, proceeds from stock option exercises of ~~407,000 and net distributions to non-controlling interests of $1,361,000.~~

Net cash provided by financing activities for the three quarters ended June 30, 2020 was $7,837,000, which includes principal payments on notes payable and long-term debt of $8,250,000, borrowings on notes payable and long-term debt of $16,945,000, contributions from non-controlling interests of $22,000$96,000 and distributions to non-controlling interests of ~~$880,000.~~

~~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.

~~See Part II, Item 1 of this Form 10-Q which is incorporated herein by reference.~~$407,000.

Impact of Inflation

The total menu price increases at our Good Times restaurants during fiscal 2020 were approximately 4.0%, and we raised menu prices approximately 4.5% during the first three quarters of fiscal 2021. The total menu increases taken at our Bad Daddy’s restaurants during fiscal 2020 were approximately 4.0% on average. We raised menu prices during the first three quarters of fiscal 2021 approximately 3.19% on average. Commodity prices have been slightly elevated since the end of fiscal 2020 compared to the first three quarters of fiscal 2020. Due to the impact of the COVID-19 pandemic, availability of certain commodities could be constrained and prices for those commodities could be substantially more volatile than in recent history. Additionally, headline inflation as measured by the Consumer Price Index has recently exceeded inflation amounts recorded at any time during the past forty years. We have experienced significant inflationary pressure both on the cost of labor in the form of salaries and wages, and also in raw products, across many of the commodities we use in our operations. Due to these factors, we are not able to predict the impact of inflation on our food and packaging costs for the balance of the year. We have adjusted menu prices with intentional discipline, particularly at Bad Daddy’s. The total menu price increases at our Good Times restaurants during fiscal 2021 were approximately 8.0%, and we raised menu prices approximately 4.1% on average during the first two quarters of fiscal 2022. We raised menu prices at our Bad Daddy’s restaurants during fiscal 2021 by approximately 3.2% and raised menu prices during the first two quarters of fiscal 2022 by approximately 4.5% on average. We continue to monitor inflationary pressures and customer reaction to competitive pricing benchmarks. We expect to increase menu pricing at least once during the next six months but cannot reasonably predict the magnitude of such price adjustments.

Seasonality

Revenues of the Company are subject to seasonal fluctuations based primarily on weather conditions adversely affecting Colorado restaurant sales in December, January, February, and March.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

~~Table of Contents~~

ITEM 4.

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 Form 10Q, the Company’s Chief Executive Officer (its principal executive officer) and ~~Principal Financial Officer~~Senior Vice President of Finance (its principal financial officer) have concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~March 29, ~~2021.~~2022.

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 29, 2021~~March 29,2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

~~As previously disclosed in the Company’s Form 10-K for the fiscal year ended September 29, 2020,~~For a discussion of material legal proceedings affecting the Company, is the defendant party to a lawsuit filed by White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc, arising from the failed negotiations between plaintiffs and the Company for the sale of the Good Times Drive Thru division to plaintiffs. The lawsuit was initially filed on September 24, 2019 in Delaware Chancery Court and Company removed the case to federal court in the US District Court for the District of Delaware on November 5, 2019. As of June 30, 2021, the parties have completed fact discovery. On July 30, 2021, the plaintiffs moved the Court for leave to amend their complaint and add new causes of action and a claim for $18 million in damages. The Company opposes this motion on various grounds and will continue to vigorously pursue a full defense of this matter on the merits. While we believe the amended complaint is without merit, if the plaintiffs are successful, it could have a material impactsee note 9 to the ~~Company.~~unaudited, consolidated financial statements included in this report.

~~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

~~The risk factor below updates~~There have been no material changes from the risk factors ~~contained~~previously disclosed in Part I, Item 1A of our ~~Annual Report on~~ Form 10-K for the fiscal year ended September ~~29, 2020.~~28, 2021.

Increasingly competitive labor markets and our need to provide additional incentives to remain competitive in our hiring and retention efforts may continue to negatively impact our margins and, if we are unable to staff and retain qualified restaurant management and operating personnel, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.

Our ongoing success requires us to attract, motivate and retain a sufficient number of qualified, high-energy employees, including both restaurant managers and crew. However, qualified individuals needed to fill these positions are in short supply in many areas, and we and other companies in our industry have experienced high turnover. Many individuals have left the restaurant industry altogether due to difficult pandemic-related operating demands and, in some cases, current unemployment subsidies. These conditions have resulted in aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive and attract talent, which in turn has led to higher labor costs and margin compression. If this trend continues, it will negatively impact our ability to effectively operate and grow our business and revenues and materially adversely affect our financial performance.

If we fail to appropriately plan and sustain our workforce and proactively respond to employee dissatisfaction, it could adversely impact guest satisfaction and operational efficiency, lead to increased litigation and unionization efforts and negatively impact restaurant profitability. Our restaurants could be short staffed, we may be forced to incur overtime expenses, and our ability to operate and expand our concepts effectively and meet customer demand could be limited. Difficulties recruiting and retaining new restaurant crew members in a timely manner also negatively impacts our ability to grow sales at existing restaurants and open new restaurants. Any or all of these factors any could materially adversely affect our financial performance.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~The Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue until the maximum value of shares is achieved or the Company terminates the program. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. As of March 29, 2022 the Company has purchased 75,900 shares of its common stock pursuant to the share repurchase plan leaving $4,669,767 available for repurchases under the plan.

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Repurchases of common stock under the share repurchase plan:

Period	Total number of shares (or units) purchased		Average price paid per share (or unit)		Total number of shares (or units) purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet be purchased under the plans or programs
12/29/2021 - 1/25/2022		-		-		-		-
1/26/2022 - 2/22/2022		32,152		4.52		32,152		-
2/23/2022 - 3/29/2022		43,748		4.23		43,748		-
Total		75,900		4.35		75,900	$	4,669,767

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

~~Table of Contents~~

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

(a) Exhibits. The following exhibits are furnished as part of this report:

Exhibit No.	Description

10.1	Seventh Amendment to Credit Agreement, dated January 31, 2022, by and among Good Times Restaurants Inc., each of its wholly-owned subsidiaries and Cadence Bank, N.A. (previously filed as Exhibit 10.1 to the Registrant’s 8-K filed on February 3, 2022 and incorporated herein by reference)
10.2	Stock Option Award Agreement between the Company and Mathew Karnes dated March 7, 2022 (previously filed as Exhibit 10.1 to the Registrant’s 8-K filed on March 8, 2022 and incorporated herein by reference)
*31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
*31.2	Certification of ~~Principal?~~Principal Financial Officer pursuant to 18 U.S.C. Section 1350
*32.1	Certification of Chief Executive Officer and ~~Principal?~~Principal Financial Officer pursuant to Section 906

~~Exhibit~~ 101.INS	XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL ~~document.~~document
~~Exhibit~~ 101.SCH	Inline XBRL Taxonomy Extension Schema ~~Document.~~Document
~~Exhibit~~ 101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document.~~Document
~~Exhibit~~ 101.LAB	Inline XBRL Taxonomy Extension Label Linkbase ~~Document.~~Document
~~Exhibit~~ 101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document.~~Document
~~Exhibit~~ 101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase ~~Document.~~Document
~~Exhibit~~ *104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*~~filed~~Filed herewith

Table of Contents

SIGNATURES

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: May 5, 2022
~~DATE: August 10, 2021~~

		Ryan M. Zink Chief Executive Officer (Principal Executive Office)


		Mathew Karnes Senior Vice President of Finance (Principal Financial Officer and Principal Accounting Officer)

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