| Note 5. | Stock-Based Compensation |
The Company has traditionally maintained incentive compensation plans that include a provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, the 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), pursuant to shareholder approval. during the 2018 fiscal year, which was approved by shareholders on May 24, 2018. Future awards will be issued under the 2018 Plan. Currently,On February 8, 2022 the Company’s shareholders approved a proposal to increase the number of shares available for issuance under the 2018 Plan from 900,000 to 1,050,000, which currently represents the maximum number of shares available for issuance under the 2018 Plan is 1,050,000.Plan.
Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). The Company recognizes the impact of forfeitures as forfeitures occur.
Our net income (loss) for the three quarters ended June 28,December 27, 2022 and June 29,December 28, 2021 includes $207,000$46,000 and $327,000,$95,000, respectively, of compensation costs related to our stock-based compensation arrangements.
Stock Option awards
The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options and stock awards granted during the three quartersquarter ended June 28,December 27, 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.
There were 20,000 incentive stock options awarded during the quarter ended December 27, 2022 to the Company’s Chief Executive Officer from available shares under the 2018 Plan, with an exercise price of $3.00 per share and a per share weighted average fair value of $2.29. During the quarter ended December 28, 2021, the Company granted 90,000 incentive stock options to its Chief Executive Officer, from available shares under the 2018 Plan, with an exercise price of $2.33 per share and a per share weighted average fair value of $1.24 pursuant to the Chief Executive Officer’s Second Amended and Restated Employment Agreement dated December 24, 2020.
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 28, 2022
Incentive and Non-Qualified Stock
Options | | Three Quarters Ended June 29, 2021
Incentive and Non-Qualified Stock
Options | | Quarter Ended December 27, 2022
Incentive and Non-Qualified Stock
Options | | | Quarter Ended December 28, 2021
Incentive and Non-Qualified Stock
Options | |
| | | | | | | | | | |
| Expected term (years) | | 6.5 | | 3.63 | | | 5.0 | | | | 4.5 | |
| Expected volatility | | 61.31% | | 74.62% | | | 60.22% | | | | 61.3% | |
| Risk-free interest rate | | 1.76% | | 0.24% | | | 4.21% | | | | 0.9% | |
| Expected dividends | | - | | - | | | - | | | | - | |
We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.
The following table summarizes stock option activity for the three quartersquarter ended June 28,December 27, 2022 under all plans:
| | | Shares | | | Weighted
Average
Exercise Price | | | Weighted Average
Remaining
Contractual Life (Yrs) | | Shares | | | Weighted
Average
Exercise Price | | | Weighted Average
Remaining
Contractual Life (Yrs) | |
| | | | | | | | | | | | | | |
| Outstanding at beginning of year | | | 443,815 | | | $ | 3.63 | | | | | | 470,161 | | | $ | 3.97 | | | | | |
| Options granted | | | 105,000 | | | $ | 4.90 | | | | | | 20,000 | | | $ | 3.00 | | | | | |
| Options exercised | | | (28,797 | ) | | $ | 3.10 | | | | | | (2,000 | ) | | $ | 2.31 | | | | | |
| Options Forfeited | | | (20,362 | ) | | $ | 4.63 | | | | | | (12,253 | ) | | $ | 3.95 | | | | | |
| Outstanding June 28, 2022 | | | 499,656 | | | $ | 3.89 | | | 5.7 | |
| Exercisable June 28, 2022 | | | 351,872 | | | $ | 3.52 | | | 5.1 | |
| Outstanding December 27, 2022 | | | | 475,908 | | | $ | 3.94 | | | | 5.5 | |
| Exercisable December 27, 2022 | | | | 326,631 | | | $ | 3.66 | | | | 4.8 | |
As of June 28,December 27, 2022, the aggregate intrinsic value of the outstanding and exercisable options was $57,000.$199,000 and $369,000, respectively. Only options whose exercise price is below the closingcurrent market price of the Company’s commonunderlying stock as of June 28, 2022 are included in the intrinsic value calculation.
During the three quarters ended June 28, 2022, the Company granted 105,000 stock options, which includes 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.
As of June 28,December 27, 2022, the total remaining unrecognized compensation cost related to non-vested stock options was approximately $239,000$192,000 and is expected to be recognized over a weighted average period of approximately 1.62.2 years.
There were 28,7972,000 stock options exercised that resulted in an issuance of 2,000 shares during the three quartersquarter ended June 28,December 27, 2022 with proceeds of approximately $90,000.$5,000. There were 170,2487,984 stock options exercised that resulted in an issuance of 7,984 shares during the three quartersquarter ended June 29,December 28, 2021 with proceeds of approximately $407,000.$13,000.
Restricted Stock Units
During the three quarters ended June 28, 2022 thereThere were 28,00025,750 restricted stock units granted during the quarter ended December 27, 2022 and there were no restricted stock units granted during the three quartersquarter ended June 29,December 28, 2021.
A summary of the status of non-vested restricted stock units as of June 28,December 27, 2022 is presented below.
| | | Shares | | | Grant Date Fair
Value Per Share |
| | | | | | |
| Non-vested shares at September 28, 2021 | | | 61,952 | | | $1.54 to $3.95 |
| Granted | | | 28,000 | | | $4.50 |
| Vested | | | (15,616 | ) | | $3.95 |
| Non-vested shares at June 28, 2022 | | | 74,336 | | | $1.54 to $4.50 |
| | | Shares | | | Grant Date Fair
Value Per Share | |
| | | | | | | |
| Non-vested units at beginning of year | | | 73,336 | | | | $1.54 to $4.50 | |
| Units granted during the quarter | | | 25,750 | | | | $2.29 | |
| Units vested during the quarter | | | (46,336 | ) | | | $1.54 | |
| Units forfeited during the quarter | | | (1,000 | ) | | | $4.50 | |
| Non-vested units at December 27, 2022 | | | 51,750 | | | | $1.54 | |
As of June 28,December 27, 2022, there was $120,000$138,000 of total unrecognized compensation cost related to non-vested restricted stock.stock units. This cost is expected to be recognized over a weighted average period of approximately 2.42.43 years.
Restricted and Unrestricted Common Stock Awards
No grants of restricted or unrestricted common stock were made during the quarter ended December 27, 2022. During the three quartersquarter ended JuneDecember 28, 20222021 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 three quarters ended June 29, 2021, the Company granted its 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.
| Note 6. | Gain on Sale of Assets and Lease Termination |
TheFor the fiscal quarter ended December 27, 2022, the Company had previously entered into an agreement with the landlord for one$8,000 of itsdeferred gains on prior sale-leaseback transactions related to certain Good Times restaurants which providedoffset by approximately $8,000 of losses incurred in the landlord an option to terminate the lease with a six-month notice in exchange for a specific termination penalty.disposal of miscellaneous assets. During the fiscal quarter ended December 28,27, 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. During the quarter ended March 29, 2022, we recognized a $642,000$607,000 gain in connection with thea landlord’s exercising a lease termination. The remainder of thetermination option for one Good Times restaurant and also recognized $7,000 in deferred gain recognized during the three quarters ended June 28, 2022 is the periodic recognition of deferred gains resulting fromon prior sale-leaseback transactions associated withrelated to certain Good Times restaurants.
| Note 7. | Prepaid expense and other current assets |
Prepaid expenses and other current assets consist of the following as of:
| | | June 28, 2022 | | | September 28, 2021 | | | December 27, 2022 | | | September 27, 2022 | |
| Prepaid Rent | | $ | 773 | | | $ | - | | | $ | 785 | | | $ | 765 | |
| Prepaid Insurance | | | | 1,027 | | | | 3 | |
| Other | | | 614 | | | | 641 | | | | 150 | | | | 120 | |
| Total | | $ | 1,387 | | | $ | 641 | | | $ | 1,962 | | | $ | 888 | |
| Note 8. | Other Accrued Liabilities |
Other accrued liabilities consist of the following as of:
| | | June 28, 2022 | | | September 28, 2021 | | | December 27, 2022 | | | September 27, 2022 | |
| Wages and other employee benefits | | $ | 3,115 | | | $ | 3,282 | | | $ | 2,561 | | | $ | 2,773 | |
| Taxes, other than income taxes | | | 1,248 | | | | 1,334 | | | | 1,441 | | | | 1,166 | |
| Gift card liability, net of breakage | | | 980 | | | | 375 | | | | 1,537 | | | | 985 | |
| General expense accrual and other | | | 2,069 | | | | 1,403 | | | | 1,499 | | | | 1,867 | |
| Total | | $ | 7,412 | | | $ | 6,394 | | | $ | 7,038 | | | $ | 6,791 | |
| Note 9. | 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 $8,000,000, withwhich as of December 27, 2022 had a maturity date of January 31, 2023 (as amended, the(the “Cadence Credit Facility”). As amended by the various amendments, theThe Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. As of June 28,December 27, 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 Bankbank 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 electsselects to pay interest based on the base rate and at the end of each LIBOR period if it electsselects 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.
As of June 28,During the fiscal quarter ended December 27, 2022, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 7.8%.
The Cadence Credit Facility 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 28,December 27, 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 remaining amount to be amortized as of December 27, 2022 is $13,000. 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 28, 2022,the date of filing this Form 10-Q, 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 28, 2022,filing this Form 10-Q, there were no outstanding letters of credit issued under the facility.
On January 24, 2023, subsequent to the end of the fiscal quarter ended December 27, 2022, the Company and Cadence amended the Cadence Credit Facility to extend its expiration date to April 30, 2023, to provide consent for the Company’s acquisition of certain non-controlling interests in Bad Daddy’s limited liability company partnerships, and to provide pro-forma credit for a portion of the full-year EBITDA, as that term is defined in the Cadence Credit Facility previously attributed to the non-controlling partners in those limited liability company partnerships. The Company is currently reviewing its future credit facility needs and expects to negotiate an amendment to the existing credit agreement or enter into a new credit agreement prior to the current maturity date of April 30, 2023.
| Note 10. | Net (Loss) Income 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 28 2022 | | | June 29, 2021 | | | June 28, 2022 | | | June 29, 2021 | |
Weighted-average shares
outstanding basic | | | 12,457,251 | | | | 12,787,390 | | | | 12,502,449 | | | | 12,689,587 | |
Effect of potentially dilutive
securities: | | | | | | | | | | | | | | | | |
| Stock options | | | 29,071 | | | | 225,471 | | | | - | | | | 40,553 | |
| Restricted stock units | | | 74,336 | | | | 63,774 | | | | - | | | | 63,774 | |
Weighted-average shares
outstanding diluted | | | 12,560,658 | | | | 13,076,635 | | | | 12,502,449 | | | | 12,793,915 | |
Excluded from diluted weighted
average shares outstanding: | | | | | | | | | | | | | | | | |
| Antidilutive | | | 387,378 | | | | 289,611 | | | | 249,752 | | | | 474,528 | |
| | | Quarter Ended | |
| | | December 27, 2022 | | | December 28, 2021 | |
| | | | | | | |
| Weighted-average shares outstanding basic | | | 12,041,628 | | | | 12,522,471 | |
| Effect of potentially dilutive securities: | | | | | | | | |
| Stock options | | | - | | | | 116,172 | |
| Restricted stock units | | | - | | | | 46,336 | |
| Weighted-average shares outstanding diluted | | | 12,041,628 | | | | 12,684,979 | |
Excluded from diluted weighted-average
shares outstanding: | | | | | | | | |
| Antidilutive | | | 527,658 | | | | 153,118 | |
| Note 11. | Contingent Liabilities and Liquidity |
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 any reasonably possible losses associated with such contingencies would be immaterial to our financial statements.
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. On May 25, 2022, the Court issued an order that the plaintiffs are only entitled to reliance damages should they prevail on their claim for breaches of the express and implied obligations to negotiate in good faith. Trial is setThe parties conducted a bench trial on this lone remaining claimthe plaintiffs’ claims. The parties concluded post-trial briefing on October 24, 2022. On January 25, 2023, the Court rendered judgment dismissing the plaintiffs’ claims in their entirety and denying all of the requested relief. The plaintiffs’ deadlines for Augusta motion for new trial or, in the alternative, an appeal are February 22 2022.and February 25, 2023, respectively.
While the Court’s rulings have 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, theThe Company has determined that some loss in respect of the lawsuit is probable and accordinglypreviously recorded an accrual for contingent litigation expense in the quarter ended March 28, 2022 in the amount of $332,000. This amount representsrepresented the Company’s best estimate of the likely amount of plaintiffs’ damage recovery assuming a finding of liability in their favor at trial. While the Company was successful at trial, and their abilityin light of plaintiff’s continuing right to satisfyseek a new trial or appeal at this time, the legal standard for proving damages in such amount, based uponCompany has determined to maintain the Company’s retained expertaccrual 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 outcomeultimate resolution of the case (including any new trial or appeal if granted) 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.merits, including any new trial or appeal if granted.
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. The Company reassesses the number of remaining renewal options to include in a lease term for a specific lease when it exercises an option to extend such lease.
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.
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 are as follows for the fiscal quarters ended:ended December 27, 2022 and December 28, 2021:
| Lease cost | | Classification | | June 28, 2022 | | | June 29, 2021 | |
| Operating lease cost | | Occupancy, Preopening costs, and General and administrative expenses, net | | $ | 1,866 | | | $ | 1,693 | |
| Variable lease cost | | Occupancy | | | 27 | | | | 20 | |
| Sublease income | | Occupancy | | | (136 | ) | | | (136 | ) |
| | | | | $ | 1,757 | | | $ | 1,577 | |
Components of operating lease costs are as follows for the three fiscal quarters ended:
| Lease cost | | Classification | | June 28, 2022 | | | June 29, 2021 | | | Classification | | December 27, 2022 | | | December 28, 2021 | |
| Operating lease cost | | Occupancy, Preopening costs, and General and administrative expenses, net | | $ | 5,491 | | | $ | 5,220 | | | Occupancy, Other restaurant
operating costs and General and
administrative expenses, net | | $ | 1,825 | | | $ | 1,795 | |
| Variable lease cost | | Occupancy | | | 106 | | | | 61 | | | Occupancy | | | 37 | | | | 20 | |
| Sublease income | | Occupancy | | | (408 | ) | | | (400 | ) | | Occupancy | | | (129 | ) | | | (136 | ) |
| | | $ | 5,189 | | | $ | 4,881 | | | $ | 1,733 | | | $ | 1,679 | |
Weighted average lease term and discount rate are as follows:
| | | June 28, 2022 | | | June 29, 2021 | | | December 27, 2022 | | | December 28, 2021 | |
| Weighted average remaining lease term (in years) | | | 8.85 | | | | 9.8 | | | | 8.49 | | | | 9.3 | |
| | | | | | | | | | | | | | | | | |
| Weighted average discount rate | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % |
Supplemental cash flow disclosures for the three fiscal quarters ended:quarter ended December 27, 2022:
| | | June 28, 2022 | | | June 29, 2021 | | | December 27, 2022 | | | December 28, 2021 | |
| Cash paid for operating lease liabilities | | $ | 5,383 | | | $ | 5,168 | | | $ | 1,853 | | | $ | 1,718 | |
| | | | | | | | | | | | | | | | | |
Non-cash operating lease assets obtained in exchange for
operating lease liabilities | | $ | 734 | | | $ | 57 | | | $ | (73 | ) | | $ | 60 | |
Supplemental balance sheet disclosures:
| Balance Sheet Classification | | Lease Classification | | June 28, 2022 | | | June 29,2021 | | |
| | | | | | December 27, 2022 | | | December 28, 2021 | |
| Right-of-use assets | | Operating lease assets | | $ | 43,566 | | | $ | 46,678 | | | Operating lease assets | | $ | 40,867 | | | $ | 44,972 | |
| | | | | | | | | | | | | | | | | |
| Current lease liabilities | | Operating lease liabilities | | | 5,349 | | | | 4,857 | | | Operating lease liability | | $ | 5,394 | | | $ | 5,051 | |
| Non-current lease liabilities | | Operating lease liabilities, less current portion | | | 46,859 | | | | 50,698 | | | Operating lease liability, less current portion | | | 43,846 | | | | 48,784 | |
| Total lease liabilities | | $ | 52,208 | | | $ | 55,555 | | | $ | 49,240 | | | $ | 53,835 | |
Future minimum rent payments for our operating leases for each of the next five years as of June 28,December 27, 2022 are as follows:
| Fiscal year ending: | | Total | | |
| Remainder of 2022 | | $ | 1,951 | | |
| 2023 | | | 7,833 | | |
| Fiscal year: | | | Total | |
| Remainder of 2023 | | | | $ | 5,818 | |
| 2024 | | | 7,730 | | | | | 7,589 | |
| 2025 | | | 7,814 | | | | | 7,669 | |
| 2026 | | | 7,256 | | | | | 7,217 | |
| 2027 | | | | | 6,917 | |
| Thereafter | | | 32,539 | | | | | 25,644 | |
| Total minimum lease payments | | | 65,123 | | | | | 60,854 | |
| Less: imputed interest | | | (12,915 | ) | | | | (11,614 | ) |
| Present value of lease liabilities | | $ | 52,208 | | | | $ | 49,240 | |
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 13. | 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.
DuringThere were no impairments in the quarter ended June 28, 2022, we recognized $303,000 in impairment cost related to one Good Times restaurant. For the threefiscal quarters ended JuneDecember 27, 2022 and December 28, 2022, we recognized $2,056,000 in total asset impairments for four restaurants. Of this amount, $790,000 was related to three Good Times restaurants and $1,266,000 was related to one Bad Daddy’s restaurant. During the three quarters ended June 29, 2021 no asset impairment costs were recognized.2021.
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 for the three quarters ended June 28,as of December 27, 2022 and June 29,December 28, 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 28,December 27, 2022, the Company had $96,000 of goodwill attributable to the Good Times reporting unit and $5,617,000 of goodwill attributable to its Bad Daddy’s reporting unit. No goodwill impairment charges were recognized during the three quarters ended Juneas of December 27, 2022 and December 28, 2022.2021.
We account for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted as necessary.
The Company continues tohad net loss for the quarter ended December 27, 2022 and net income for the quarter ended December 28, 2021, we have significant net operating loss carryforwards from prior years and a history of net losses through the duration of our existence. Full valuation allowances were established to reduce any deferred tax assets recorded to zero for both the quarters ended June 28,December 27, 2022 and June 29,December 28, 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 $9,000 for the three quarters ended June 28, 2022 related to state income taxes resulting in an effective income tax rate of (0.7%) for the period. For the three quartersquarter ended June 29, 2021,December 27, 2022 we did not recognize any provision for income taxes as we estimated no current tax liability for either for federal or state jurisdictions resulting in an effective income tax rate of zero for the period. For the period ended December 28, 2021, we recognized a provision for income taxes of $8,000 related to our estimate of current income taxes payable resulting in an effective tax rate of 2.0%.
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 2019 through 2022.2022. The Company believes that its income tax filing positions and deductions will be sustained upon audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. No accrual for interest and penalties was considered necessary as of June 28,December 27, 2022.
| Note 15. | Non-controlling Interests |
Non-controlling interests are presented as a separate item in the 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 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 quartersquarter ended June 28,December 27, 2022 (in thousands):
| | | Bad Daddy’s | | | Good Times | | | Total | | | | Bad Daddy’s | | | Good Times | | | Total | |
| Balance as of September 28, 2021 | | $ | 915 | | | $ | 209 | | | $ | 1,124 | | |
| Balance at September 27, 2022 | | | | $ | 1,041 | | | $ | 262 | | | $ | 1,303 | |
| Income | | | 1,025 | | | | 464 | | | | 1,489 | | | | | 179 | | | | 43 | | | | 222 | |
| Distributions | | | (840 | ) | | | (397 | ) | | | (1,237 | ) | | | | (147 | ) | | | (25 | ) | | | (172 | ) |
| Balance as of June 28, 2022 | | $ | 1,100 | | | $ | 276 | | | $ | 1,376 | | |
| Contribution | | | | | 13 | | | | - | | | | 13 | |
| Balance at December 27, 2022 | | | | $ | 1,086 | | | $ | 280 | | | $ | 1,366 | |
Our non-controlling interests consistat the end of the quarter consisted of one joint-venture partnership involving seven Good Times restaurants and five joint-venture partnerships involving five Bad Daddy’s restaurants. Subsequent to the quarter ended December 27, 2022, the Company acquired all of the membership interests in five Bad Daddy’s as described in Note 17 to the unaudited, consolidated financial statements included in this report.
| Note 16. | 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.
The following tables present information about our reportable segments for the respective periods (in thousands):
| | | Quarter Ended | |
| | | December 27, 2022
(13 Weeks) | | | December 28, 2021
(13 Weeks) | |
| Revenues | | | | | | |
| Bad Daddy’s | | $ | 25,226 | | | $ | 24,672 | |
| Good Times | | | 8,168 | | | | 8,244 | |
| | | $ | 33,394 | | | $ | 32,916 | |
| Income (Loss) from operations | | | | | | | | |
| Bad Daddy’s | | $ | (7 | ) | | $ | 308 | |
| Good Times | | | 114 | | | | 968 | |
| | | $ | 107 | | | $ | 1,276 | |
| Capital expenditures | | | | | | | | |
| Bad Daddy’s | | $ | 158 | | | $ | 192 | |
| Good Times | | | 726 | | | | 45 | |
| | | $ | 884 | | | $ | 237 | |
| Property and equipment, net | | December 27, 2022 | | | September 27, 2022 | |
| Bad Daddy’s | | $ | 18,926 | | | $ | 19,575 | |
| Good Times | | | 3,266 | | | | 2,676 | |
| Total | | $ | 22,192 | | | $ | 22,251 | |
Note 16. | Subsequent Events |
None.
| Note 17. | Segment ReportingSubsequent Events |
AllOn January 24, 2023, the Company and Cadence amended the Cadence Credit Facility to extend its expiration date to provide consent for the acquisition of ourcertain non-controlling interests in five Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service segment of the restaurant industry while our Good Times Burgersjoint-ventures 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 willto 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 associatedEBITDA credit 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 itemsrespect to the amounts presented in the consolidated financial statements.those acquired interests.
On January 25, 2023, the Company acquired all of the membership interests in five Bad Daddy’s restaurant joint-ventures that it did not already own. The following tables present information about our reportable segments forCompany’s remaining non-controlling interests are attributed to a limited partnership with ownership of five Good Times restaurants in which the respective periods (in thousands):Company and the non-controlling partner each own 50%. The aggregate cash purchase price paid to the Sellers was $4,394,205.
| | | Quarter Ended | | | Year-to-Date | |
| | | June 28, 2022
(13 Weeks) | | | June 29, 2021
(13 Weeks) | | | June 28, 2022
(39 Weeks) | | | June 29, 2021
(39 Weeks) | |
| Revenues | | | | | | | | | | | | |
| Bad Daddy’s | | $ | 27,231 | | | $ | 24,481 | | | $ | 77,427 | | | $ | 64,263 | |
| Good Times | | | 9,266 | | | | 9,465 | | | | 25,583 | | | | 26,171 | |
| | | | 36,497 | | | | 33,946 | | | | 103,010 | | | | 90,434 | |
Income (Loss) from
operations | | | | | | | | | | | | | | | | |
| Bad Daddy’s | | | 635 | | | | 1,577 | | | | 138 | | | | 2,760 | |
| Good Times | | | 186 | | | | 869 | | | | 50 | | | | 2,552 | |
| | | | 821 | | | | 2,446 | | | | 188 | | | | 5,312 | |
| Capital expenditures | | | | | | | | | | | | | | | | |
| Bad Daddy’s | | | 652 | | | | 802 | | | | 1,480 | | | | 1,826 | |
| Good Times | | | 364 | | | | 110 | | | | 471 | | | | 272 | |
| | | $ | 1,016 | | | $ | 912 | | | $ | 1,951 | | | $ | 2,098 | |
| | | June 28, 2022 | | | September 28, 2021 | |
| Property and equipment, net | | | | | | | | |
| Bad Daddy’s | | $ | 20,990 | | | $ | 23,293 | |
| Good Times | | | 2,548 | | | | 3,773 | |
| | | $ | 23,538 | | | $ | 27,066 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and 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 28, 2021.27, 2022. 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:
| (II)(I) | The disruption to our business from the novel coronavirus (COVID-19) pandemic and the impact of the pandemic on our results of operations, financial condition and prospects. The disruption and effect on our business may vary depending on the duration and extent of the COVID-19 pandemic and the impact of federal, state and local governmental actions and customer behavior in response to the pandemic. |
| (II) | We compete with numerous well-established competitors who have substantially greater financial resources and longer operating histories than we do. Competitors have increasingly offered selected food items and combination meals, including hamburgers, at discounted prices, and continued discounting by competitors may adversely affect revenues and profitability of Company restaurants. |
| (II)(III) | 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)(IV) | 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 which have resulted in increases in commodity, labor and energy costs for both concepts as well as increased product substitutions, elevated freight costs, and increased variability in product quality. Further significant increases in inflation could affect the impactsglobal and U.S. economies, which could have an adverse impact on our business and results of such inflation, includingoperations if we and our franchisees are not able to adjust prices sufficiently to offset the impacteffect of related governmental response, cannot be accurately predicted.cost increases without negatively impacting consumer demand. |
We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers’ compensation or energy; inadequate number of hourly paid employees; increased wages and salaries for hourly and salaried employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 28, 2021.27, 2022.
OverviewOverview.
Good Times RestaurantsRestaurant 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.
COVID-19Macro-Economic Factors and Operating Environment.
Currently all of our Bad Daddy’s and Good Times restaurants are operating without COVID-19 related government restrictions or mask mandates. However, the second-and third-order effectsThe global crisis resulting from the pandemic have had a lingering impact onspread of coronavirus (“COVID-19”) continued to our restaurant operations for the three quartersquarter ended June 28,December 27, 2022 including disruptionsalthough the impact was more modest than in the prior year. We expect local conditions to continue to dictate limitations on restaurant operations, capacity, and otherhours of operation. The lingering impacts to the supply chain and labor markets, and varying changes in consumer behavior. During portions of the monthpandemic have also contributed to labor challenges, which have increased hourly wages and management salaries at both concepts, and in limited cases have resulted in reduced operating hours at certain restaurants. Supply chain constraints have affected both of November 2020 through early January 2021, allour concepts, resulting in higher food and beverage cost associated with general increases in input price levels as well as increased product substitutions, elevated freight costs, and increased variability in product quality, primarily in produce items. In addition, during the quarter ended December 27, 2022, high rates of inflation have been seen globally which have also resulted in increases in commodity, labor and energy costs for both concepts. Further significant increases in inflation could affect the Company’s Bad Daddy’s Burger Bar restaurants in Colorado were open only for limited outdoor dining, deliveryglobal and carry-out service, with indoor dining rooms closed by government orders. Beginning in early January 2021,U.S. economies, which could have an adverse impact on our business and results of operations if we beganand our franchisees are not able 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 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 dueadjust prices sufficiently to social distancing protocols that are either mandated by the same government orders, or which we abide by as under our own internal protocols designed to maintain a safe foodservice environment, both for our employees and for our customers.
Our operating results substantially depend upon our ability to drive traffic to our restaurants, and for our Bad Daddy’s Burger Bar restaurants, to serve guests in our dining rooms. We cannot currently predict the continued impact ofoffset the effect of the COVID-19 pandemic on our business, including any mutations of the virus and additional variants; neither are we able to predict how the pandemic will evolve nor how the long-lived impacts on supply chain, labor market, and customer behavior will evolve. Should additional dining room closures or mask mandates occur, our business could be adversely affected. Evencost increases without government orders, customers may choose to reduce or eliminate in-restaurant dining if there are increasing numbers of COVID-19 cases, hospitalizations, or deaths.negatively impacting consumer demand.
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 number of items purchased per guest, or close some or all of our restaurants for an indeterminate period of time. The long-lived, residual impacts from the COVID-19 pandemic and 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.
War in Ukraine
Although we conduct all of our restaurant operations within the USA, worldwide product supply chains have been impacted by the war in Ukraine. Specifically sunflower oil and wheat, which are fungible commodities, are used as ingredients in our raw materials and purchased by our suppliers, have significant supplies that typically originate in Ukraine. The lack of availability of supplies of such products may impact the availability and supplier pricing for products purchased by us for use in our business, which could result in higher food and packaging costs or reduced revenues.
Growth Strategies and OutlookOutlook.
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 evaluatingcontinue to evaluate that in linein-line with the inflationary impact of the pandemic oncurrently seen in the restaurant industry. We currently are filling aHowever, we do anticipate the opening of one new restaurant development pipeline and expect new Bad Daddy’s restaurant openings in fiscal 2023.late Fiscal 2023 in the greater Huntsville, Alabama market.
Restaurant locations.
As of June 28,December 27, 2022, we operated, franchised, or licensed a total of forty-twoforty-one Bad Daddy’s restaurants and thirty-one Good Times restaurants. The following table presents the number of restaurants operating at the end of the thirdfirst fiscal quarters of 2022 and 2021. Subsequent to the quarter ended December 27, 2022, the Company acquired all of the membership interests in five Bad Daddy’s, four in North Carolina and one in South Carolina.
Company-Owned/Co-Developed/Joint-VentureJoint-Venture:
| | | Bad Daddy’s
Burger Bar | | | Good Times Burgers
& Frozen Custard | | | Total | | | Bad Daddy’s
Burger Bar | | | Good Times Burgers
& Frozen Custard | | | Total | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| Alabama | | | 2 | | | | 1 | | | | - | | | | - | | | | 2 | | | | 1 | | | | 2 | | | | 2 | | | | - | | | | - | | | | 2 | | | | 2 | |
| Colorado | | | 12 | | | | 12 | | | | 23 | | | | 24 | | | | 35 | | | | 36 | | | | 12 | | | | 12 | | | | 23 | | | | 24 | | | | 35 | | | | 36 | |
| Georgia | | | 5 | | | | 5 | | | | - | | | | - | | | | 5 | | | | 5 | | | | 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 | | | 4 | | | | 3 | | | | - | | | | - | | | | 4 | | | | 3 | | | | 4 | | | | 3 | | | | - | | | | - | | | | 4 | | | | 3 | |
| Tennessee | | | 2 | | | | 2 | | | | - | | | | - | | | | 2 | | | | 2 | | | | 2 | | | | 2 | | | | - | | | | - | | | | 2 | | | | 2 | |
| Total | | | 40 | | | | 38 | | | | 23 | | | | 24 | | | | 63 | | | | 62 | | | | 40 | | | | 39 | | | | 23 | | | | 24 | | | | 63 | | | | 63 | |
We purchased one previously franchised Bad Daddy’s during the second fiscal quarter of 2022 and one BD location opened in Alabama in the final quarter of 2021. One company-owned Good Times restaurant closed, anddue to a termination by the property was subleasedlandlord, for redevelopment during fiscal 2021.year 2022.
Franchise/LicenseLicense:
| | | 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 | | | Bad Daddy’s
Burger Bar | | | Good Times Burgers
& Frozen Custard | | | Total | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2021 | | | 2021 | |
| Colorado | | | 1 | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | 1 | |
| Total | | | 1 | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | 1 | |
*The non-traditional Bad Daddy’s Burger Bar location, is a location where we operateoperated the kitchen under our Bad Daddy’s brand for a local brewery’s taproom.taproom, closed in 2022.
Results of Operations
Fiscal quarter ended June 28,December 27, 2022 (13 weeks) compared to fiscal quarter ended June 29,December 28, 2021 (13 weeks):
Net Revenues. Net revenues for the quarter ended June 28,December 27, 2022 increased $2,551,000$478,000 or 7.5%1.5% to $36,497,000$33,394,000 from $33,946,000$32,916,000 for the quarter ended June 29,December 28, 2021. Bad Daddy’s concept revenues increased $2,750,000$554,000 while our Good Times concept revenues decreased $199,000.$76,000.
Bad Daddy’s restaurant sales increased $2,764,000$575,000 to $27,172,00025,165,000 for the quarter ended June 28,December 27, 2022 from $24,408,000$24,590,000 for the quarter ended June 29,December 28, 2021. This increase is primarilySales were positively impacted by and increases in sales due to increasedstronger customer traffic as well as menu price increases.compared to the prior year in connection with easing of COVID restrictions. The average menu price increase for the quarter ended June 28,December 27, 2022 over the same prior-year quarter was approximately 6.8%5.3%.
Good Times restaurant sales decreased $200,000$72,000 to $9,093,0008,014,000 for the quarter ended June 28,December 27, 2022 from $9,293,000$8,086,000 for the quarter ended June 29,December 28, 2021. This decrease is primarily due to the loss of sales associated with the closure of one restaurant in the second quarter of 2022, partially offset by menu price increases. The average menu price increase for the quarter ended June 28,December 27, 2022 over the same prior-year quarter was approximately 8.2%8.8%.
Franchise revenues were $232,000decreased 25,000 to $215,000 in the quarter ended June 28,December 27, 2022 compared to $245,000$240,000 in the quarter ended June 29,December 28, 2021. This decrease is primarily due to decreased royalties resulting from the Company’s purchaseacquisition, during the second fiscal quarter of a previously franchised2022, by the Company of one Bad Daddy’s restaurant.restaurant previously owned by a franchisee.
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 company-owned 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 increased 5.3%2.4% during the quarter ended June 28,December 27, 2022 compared to the same thirteen-week period ended June 29,December 28, 2021 in the prior-year quarter. This increase isquarter, primarily due to increased traffic as well asdriven by strong off premise sales and menu price increases. There were thirty-eightthirty-nine restaurants included in the same store sales base at the end of the quarter.
Good Times same store restaurant sales increased 1.6%%3.0% during the quarter ended June 28,December 27, 2022 compared to the same thirteen-week period ended June 29,December 28, 2021 in the prior-year quarter. This increase isquarter, primarily due to increased traffic as well as menu price increases.increases, slightly offset by lower traffic. There were 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 28,December 27, 2022 increased $1,778,000$381,000 to $11,767,000 (32.4%10,607,000 (32.0% of restaurant sales) from $9,989,000 (29.6%$10,226,000 (31.3% of restaurant sales) for the quarter ended June 29, 2021.December 28, 2021.
Bad Daddy’s food and packaging costs were $8,832,000 (32.5%7,973,000 (31.7% of restaurant sales) for the quarter ended June 28,December 27, 2022, up from $7,257,000 (29.7%$7,812,000 (31.8% of restaurant sales) for the quarter ended June 29,December 28, 2021. This increase is primarily attributable to higher restaurant sales during the current fiscal quarter versus the same quarter in the prior year. The increase as a percent of sales is attributable the significant inflation noted during the quarter with most of our food and packaging products seeing meaningful unit price increases.fiscal quarter.
Good Times food and packaging costs were $2,935,000 (32.3%$2,634,000 (32.9% of restaurant sales) for the quarter ended June 28,December 27, 2022, up from $2,732,000 (29.4%$2,414,000 (29.9% of restaurant sales) for the quarter ended June 29,December 28, 2021. This increase is primarily attributable to the impact of higher purchase prices on food and paper goods, partially offset by increasedthe impact of an 8.8% increase in menu pricing.
Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the quarter ended June 28,December 27, 2022 increased $1,034,000$371,000 to 12,295,000 (33.9%11,548,000 (34.8% of restaurant sales) from $11,261,000 (33.4%$11,177,000 (34.2% of restaurant sales) for the quarter ended June 29,December 28, 2021.
Bad Daddy’s payroll and other employee benefit costs were $9,296,000 (34.2%$8,754,000 (34.8% of restaurant sales) for the quarter ended June 28,December 27, 2022 up from $8,381,000 (34.3%$8,418,000 (34.2% of restaurant sales) in the same prior year period. The $915,000$336,000 increase is primarily attributable to increased wage rates paid, primarily to back of house employees,higher restaurant sales during the current quarter versus the same quarter in the prior year, the resultas well as higher average pay rates. As a percent of a competitive labor market.sales, payroll and employee benefits costs increased by 0.6% primarily attributable to higher average wage rates paid to attract qualified employees.
Good Times payroll and other employee benefit costs were $2,999,000 (33%2,794,000 (34.9% of restaurant sales) in the quarter ended June 28,December 27, 2022, up from $2,880,000 (31.0%$2,759,000 (34.1% of restaurant sales) in the same prior-year period. ThisThe $35,000 increase, both in nominal dollars and as measured as a percent of restaurant sales, was primarily attributable to higher average wage rates. These higher wages are in-part driven by a combination of the significant statutory wage increase in the City and County of Denver and the impact of the extremely competitive labor market forrates paid to attract qualified restaurant employees in Colorado.employees.
Occupancy Costs. Occupancy costs for the quarter ended June 28,December 27, 2022 increased $200,000$130,000 to $2,383,000 (6.6%$2,458,000 (7.4% of restaurant sales) from $2,183,000 (6.5%$2,328,000 (7.1% of restaurant sales) for the quarter ended June 29,December 28, 2021.
Bad Daddy’s occupancy costs were $1,684,000 (6.2%1,732,000 (6.9% of restaurant sales) for the quarter ended June 28,December 27, 2022, up from $1,485,000 (6.1%$1,649,000 (6.7% of restaurant sales) in the same prior year period. The increase was primarily attributable to lease costs with newly opened restaurants,additional lease costs associated with the restaurant acquired from a former franchiseepurchase of our Bad Daddy’s Franchisee in the second quarter of Fiscal 2022 and increased realincrease property tax assessments.assessments overall.
Good Times occupancy costs were $699,000 (7.7%$726,000 (9.1% of restaurant sales) in the quarter ended June 28,December 27, 2022, up from $698,000 (7.5%$679,000 (8.4% of restaurant sales) in the same prior year period. The increase was primarily attributable to increased property and liability insurance costs.
Other Operating Costs. Other operating costs for the quarter ended June 28,December 27, 2022, increased $1,023,000$354,000 to $4,753,000 (13.1%$4,492,000 (13.5% of restaurant sales) from $3,730,000 (11.1%$4,138,000 (12.7% of restaurant sales) for the quarter ended June 29,December 28, 2021.
Bad Daddy’s other operating costs were $3,742,000 (13.8%$3,521,000 (14.0% of restaurant sales) for the quarter ended June 28,December 27, 2022 up from $2,939,000 (12.0%$3,285,000 (13.4% of restaurant sales) in the same prior year period. The $236,000 increase and the increase as a percentage of sales was attributable to higher overall sales. As a percent of sales, the increase is attributable to higher increased spending on restaurant technology, and higher repair and maintenance expenses.expenses, increased third party delivery fees, and increased payroll service fees.
Good Times other operating costs were $1,011,000 (11.1%$971,000 (12.1% of restaurant sales) in the quarter ended June 28,December 27, 2022, up from $791,000 (8.5%$853,000 (10.5% 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, and higher repair and higher preventive maintenance expenses.sales.
New Store Preopening Costs. ThereIn the quarter ended December 27, 2022, there were no preopening costs incurred during the quarter ended June 28, 2022 compared to $301,000$50,000 for the quarter ended June 29,December 28, 2021.
Depreciation and Amortization Costs. Depreciation and amortization costs for the quarter ended June 28,December 27, 2022, increased $55,000decreased $74,000 to $993,000910,000 from $938,000$984,000 in the quarter ended June 29,December 28, 2021.
Bad Daddy’s depreciation and amortization costs for the quarter ended June 28,December 27, 2022 increased $105,000decreased $11,000 to $846,000$773,000 from $741,000$784,000 in the quarter ended June 29,December 28, 2021. This increase was primarily attributable to the two new restaurants opened in final quarter of fiscal 2021 as well as the acquisition of our franchise unit in the 2nd quarter of 2022
Good Times depreciation and amortization costs for the quarter ended June 28,December 27, 2022 decreased $50,000$63,000 to $147,000$137,000 from $197,000$200,000 in the quarter ended June 29,December 28, 2021. This decrease is primarily attributable to assets reaching full amortization and the closure of a restaurant in the prior quarter associated with a landlord termination option.
General and Administrative Costs. General and administrative costs for the quarter ended June 28,December 27, 2022, decreased $126,000$330,000 to $2,379,000 (6.5%$2,375,000 (7.1% of total revenue)revenues) from $2,505,000 (7.4%$2,705,000 (8.2% of total revenue) for the quarter ended June 29,December 28, 2021.
This decrease in general and administrative expenses in the quarter ended June 28,December 27, 2022 is primarily attributable to:
| ·● | Decreased costsDecrease in legal and professional services of $419,000$267,000 |
| ● | ·Decrease in Office lease and equipment expense of $24,000 |
| ● | Decrease in general travel related expenses of $17,000 |
| ● | Decrease in home office payroll ad benefit costs of $27,000 |
| ● | Decrease in insurance costs of $84,000 |
| ● | Decrease in Stock Compensation costs of $49,000 |
| ● | Decrease in other costs of $19,000 |
| ● | Increase in recruiting and training related costs of $118,000, including costs related to a multi-unit supervisor training conference$28,000 |
| ● | ·Increase in costs associated with new multi-unit supervisory roles of $23,000 |
| ● | Increase in administrative, related payrollaccounting, and benefittechnology costs of $77,000, primarily related to additional administrative and consultant salary expenses, offset by reduced health insurance underwriting losses. |
| · | Increase in general travel-related expenses of $33,000 |
| · | Increase in the cost of business insurance including D&O, EPL, and cyber coverage of $24,000 |
| · | Increase in corporate technology expenses of $16,000 |
| · | Increase in stock compensation expense of $10,000 |
| · | Net increase in all other expenses of approximately $24,000$106,000 |
For the balance of the fiscal year, we expect general and administrative costs to trend similarly in nominal terms to costs incurred during the current quarter.
Advertising Costs. Advertising costs for the quarter ended June 28, 2021,December 27, 2022, increased $210,000 to $807,000 (2.2%$894,000 (2.7% of total revenue)sales from $597,000 (1.8%$641,000 (1.9% of total revenue) for the quarter ended June 29,December 28, 2021.
Bad Daddy’s advertising costs were $448,000 (1.6%$610,000 (2.4% of total revenue)restaurant sales) in the quarter ended June 28,December 27, 2022 compared to $222,000 (0.9%$314,000 (1.3% of total revenue) in the same prior year period. The increase is primarily due to recognition of commission earned by third parties on gift cards sold through large-box retailersretailers. Bad Daddy’s advertising costs consist primarily of menu development, printing costs, local store marketing and a radiosocial media. The current quarter had no advertising campaign in Colorado.costs associated with franchise contributions. The prior year quarter includes advertising costs of $4,000 associated with franchise advertising contributions.
Bad Daddy’s advertising costs consist primarily of a combination of menus and other point of purchase materials, digital advertising, and commissions incurred for placement of gift parties at third party retailers, as well as local store marketing efforts.
Good Times advertising costs were $359,000 (3.9%$284,000 (3.5% of total revenue)restaurant sales) in the quarter ended June 28,December 27, 2022 compared to $375,000$327,000 (4.0% of total revenue) in the same prior year period. The slight decrease is primarily due to decreased advertising expenditures in the current quarter versus the same prior year quarter. The current and prior year quarters include advertising costs of $68,000$66,000 and $71,000,$67,000, respectively, of costs associated with franchise advertising contributions.
Good Times advertising costs consistsconsist primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales which are used to provide television and radio advertising, social media and on-site and point-of-purchase. 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 on an annual basis, at approximately 4.0%3.5% of total revenue for the Good Times segment.
Franchise Costs. Franchisesegment, though because we consolidate the advertising fund into our results, quarterly costs were $5,000 and $5,000 for the quarters ended June 28, 2022 and June 29, 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 $303,000 for the quarter ended June 28, 2022, which were attributable to one Good Times restaurant.
Gain on Restaurant Asset Sales and Lease Termination. The gain on restaurant asset sales and lease termination for the quarter ended June 28, 2022 was $9,000 compared to $9,000 for the quarter ended June 29, 2021 related to past sale-leaseback transactions of Good Times restaurants.
Income (Loss) from Operations. Income from operations was $821,000 in the quarter ended June 28, 2022 compared to income from operations of $2,446,000 in the quarter ended June 29, 2021.
The change in the loss from operations for the quarter ended June 28, 2022 is primarily due to matters discussed in the sections above.
Interest and other expense, net. Interest and other expense, net was $12,000 during the quarter ended June 28, 2022, compared to $66,000 for the quarter ended June 29, 2021. The $54,000 reduction is primarily due to lower interest costs attributable to there being no outstanding long-term debt in the current year. The remaining interest expense is attributable to commitment fees and the amortization of loan costs associated with the Cadence Credit Facility.
Gain on Debt Extinguishment. There was no gain on debt extinguishment for the quarter compared to $11,778,000 for the quarter ended June 29, 2021. The gain in the prior year quarter was related to forgiveness of PPP loans by the SBA.
Provision for Income Taxes. Provision for income taxes was $1,000 for the quarter ended June 28, 2022 primarily associated with estimated cash taxes due for state income tax.
Net (Loss) Income. Net income was $808,000 for the quarter ended June 28, 2022 compared to net income of $14,158,000 in the quarter ended June 29, 2021.
The change from the quarter ended June 28, 2022 to the quarter ended June 29, 2021 was primarily attributable to the matters discussed in the 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.
For the quarter ended June 28, 2022, the income attributable to non-controlling interests was $339,000 compared to $524,000 for the quarter ended June 29, 2021.
Of the current quarter’s income attributable to non-controlling interests, $184,000 is attributable to Bad Daddy’s joint-venture restaurants, compared to $263,000 in the same prior year period. This $79,000 decrease is primarily due to reduced restaurant-level profitability in the relevant restaurants. The remaining $155,000 is attributable to the Good Times joint-venture restaurants, compared to $261,000 in the same prior year period. This $106,000 decrease is primarily due to reduced restaurant-level profitability in the relevant restaurants.
Fiscal three quarters ended June 28, 2022 (39 weeks) compared to fiscal three quarters ended June 29, 2021 (39 weeks):
Net Revenues. Net revenues for the three quarters ended June 28, 2022 increased $12,576,000 or 13.9% to $103,010,000 from $90,434,000 for the three quarters ended June 29, 2021. Bad Daddy’s concept revenues increased $13,164,000 while our Good Times concept revenues decreased $588,000.
Bad Daddy’s restaurant sales increased $13,128,000 to $77,210,000 for the three quarters ended June 28, 2022 from $64,082,000 for the three quarters ended June 29, 2021. This increase is primarily due to strong customer demand, as well as a increases in menu prices. The average menu price increase for the three quarters ended June 28, 2022 over the same prior-year quarter was approximately 5.5%.
Good Times restaurant sales decreased $600,000 to $25,095,000 for the three quarters ended June 28, 2022 from $25,695,000 for the three quarters ended June 21, 2021. This decrease is primarily due to decreased traffic, the loss of sales associated with the closure of one restaurant in the second quarter of 2022, partially offset by menu price increases. The average menu price increase for the three quarters ended June 29, 2021 over the same prior-year quarter was approximately 7.2%.
Franchise revenues were $705,000 in the three quarters ended June 28, 2022 compared to $657,000 in the three quarters ended June 29, 2021. This increase is primarily due to increased royalties at the Bad Daddy’s franchisee and licensee restaurants attributable to increased sales.
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 increased 14.0% during the three quarters ended June 28, 2022 compared to the same thirteen-week period ended June 29, 2021 in the prior-year quarter. This increase is primarily due to increased traffic as well as menu price increases. There were thirty-eight restaurants included in the same store sales base at the end of the quarter.
Good Times same store restaurant sales decreased 0.6% during the three quarters ended June 28, 2022 compared to the same thirteen-week period ended June 29, 2021 in the prior-year quarter. This decrease is primarily due to slightly lower traffic, partially offset by menu price increases. There were 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 quarters ended June 28, 2022 increased $6,413,000 to $32,450,000 (31.7% of restaurant sales) from 26,037,000 (29.0% of restaurant sales) for the three quarters ended June 29, 2021.
Bad Daddy’s food and packaging costs were $24,615,000 (31.9% of restaurant sales) for the three quarters ended June 28, 2022, up from $18,494,000 (28.9% of restaurant sales) for the three quarters ended June 29, 2021. This increase is primarily attributable to higher restaurant sales during the three quarters versus the same period in the prior year. The increase as a percent of sales is attributable the significant inflation noted during the quarter with most of our food and packaging products seeing meaningful unit price increases.
Good Times food and packaging costs were $7,835,000 (31.2% of restaurant sales) for the three quarters ended June 28, 2022, up from $7,543,000 (29.4% of restaurant sales) for the three quarters ended June 29, 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.
Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the three quarters ended June 28, 2022 increased $5,240,000 to 35,027,000 (34.2% of restaurant sales) from $29,787,000 (33.2% of restaurant sales) for the three quarters ended June 29, 2021.
Bad Daddy’s payroll and other employee benefit costs were $26,450,000 (34.3% of restaurant sales) for the three quarters ended June 28, 2022 up from $21,644,000 (33.8% of restaurant sales) in the same prior year period. The $4,806,000 increase is primarily attributable to greater hours to support increased guests at restaurants during the current year versus the same prior year period, as well as higher average pay rates. As a percent of sales, payroll and employee benefits costs increased by 0.4% primarily attributable to higher average wage rates paid to attract qualified employees.
Good Times payroll and other employee benefit costs were $8,577,000 (34.2% of restaurant sales) in the three quarters ended June 28, 2022, up from $8,143,000 (31.7% of restaurant sales) in the same prior-year period. The $434,000 increase, both in nominal dollars and as measured as a percent of restaurant sales, was attributable to higher average wage rates paid to attract qualified employees. These higher wages are in-part driven by a combination of the significant statutory wage increase in the City and County of Denver and the impact of the overall market for quick service restaurant employees.will fluctuate.
Occupancy Costs. Occupancy costs for the three quarters ended June 28, 2022 increased $555,000 to $7,088,000 (6.9% of restaurant sales) from $6,533,000 (7.3% of restaurant sales) for the three quarters ended June 29, 2021.
Bad Daddy’s occupancy costs were $5,011,000 (6.5% of restaurant sales) for the three quarters ended June 28, 2022, up from $4,352,000 (6.8% 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 higher restaurant sales.
Good Times occupancy costs were $2,077,000 (8.3% of restaurant sales) in the three quarters ended June 28, 2022, down from $2,181,000 (8.5% 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 and associated with a lease termination agreement for one good times restaurant
Other Operating Costs. Other operating costs for the three quarters ended June 28, 2022, increased $2,717,000 to $13,558,000 (13.3% of restaurant sales) from $10,841,000 (12.1% of restaurant sales) for the three quarters ended June 29, 2021.
Bad Daddy’s other operating costs were $10,696,000 (13.9% of restaurant sales) for the three quarters ended June 28, 2022 up from 8,448,000 (13.2% of restaurant sales) in the same prior year period. The $2,281,000 increase was attributable to higher overall sales as well as higher repair and maintenance expenses.
Good Times other operating costs were $2,862,000 (11.4% of restaurant sales) in the three quarters ended June 28, 2022, up from $2,393,000 (9.3% of restaurant sales) in the same prior year period. The increase was primarily attributable to general price inflation in supplies costs and increases in commissions paid to delivery service providers due to increases in overall delivery sales, as well as higher repair and maintenance expenses.
New Store Preopening Costs. Preopening costs for the three quarters ended June 28, 2022 decreased $370,000 to $50,000 from $420,000 in the three quarters ended June 29, 2021. The costs in the prior year were related to a Bad Daddy’s restaurant opened near the end of fiscal 2021.
Depreciation and Amortization Costs. Depreciation and amortization costs for the three quarters ended June 28, 2022, increased $193,000 to $2,990,000 from $2,797,000 in the three quarters ended June 29, 2021.
Bad Daddy’s depreciation and amortization costs for the three quarters ended June 28, 2022 increased $248,000 to $2,464,000 from $2,216,000 in the three quarters ended June 29, 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 three quarters ended June 28, 2022 decreased $55,000 to $526,000 from $581,000 in the three quarters ended June 29, 2021.
General and Administrative Costs. General and administrative costs for the three quarters ended June 28, 2022, increased $564,000 to $7,661,000 (7.4% of total revenue) from $7,097,000 (7.8% of total revenue) for the three quarters ended June 29, 2021.
This increase in general and administrative expenses in the three quarters ended June 28, 2022 is primarily attributable to:
| · | Increase in Training and Recruiting costs, including incentives, of $269,000, including costs associated with the annual general manager conference and a multi-unit supervisor training conference. |
| · | Decrease in administrative related payroll and benefit costs of $245,000, primarily related to the prior-year one-time bonus awarded to the CEO in connection with the amendment of his employment agreement, and reduced health insurance underwriting losses, partially offset by increased administrative salaries and wages. |
| · | Increase in legal and professional services costs of $138,000 |
| · | Decreased stock compensation cost, primarily related to the prior-year accelerated recognition of stock-based compensation cost in connection with the vesting of performance shares and incentive stock options that were issued to the CEO in connection in connection with the amendment of his employment agreement |
| · | Increase in corporate technology expenses of $133,000 |
| · | Increase in the cost of multi-unit supervision cost of $87,000, primarily related to increased multi-unit travel costs and incentive compensation |
| · | Increase in professional services of $15,000 |
| · | Increase in general travel-related costs of $72,000 |
| · | Increase in vendor fees primarily related to lower corporate vendor rebates. |
| · | Increase in the cost of business insurance including D&O, EPL, and cyber coverage of $68,000 |
| · | Increase in general office expenses of $38,000 |
| · | Increase in various other expenses of $23,000 |
Advertising Costs. Advertising costs for the three quarters ended June 28, 2022, increased $644,000 to $2,260,000 (2.2% of total revenue) from $1,616,000 (1.8% of total revenue) for the three quarters ended June 29, 2021.
Bad Daddy’s advertising costs were $1,228,000 (1.6% of total revenue) in the three quarters ended June 29, 2021 compared to $575,000 (0.9% of total revenue) in the same prior year period. The increase is primarily due to greater spending on physical menus and point-of-sale materials in the 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 $9,000 and $4,000 respectively, associated with franchise advertising contributions.
Good Times advertising costs were $1,032,000 (4.0% of total revenue) in the three quarters ended June 28, 2022 compared to $1,041,000 (4.0% of total revenue) in the same prior year period. The current and prior year quarters include advertising costs of $195,000 and $71,000, respectively, of costs associated with franchise advertising contributions.
Good Times advertising costs consists primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales which are used to provide television and radio advertising, social media and on-site and point-of-purchase. 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 $16,000$3,000 and $22,000$5,000 for the quarters ended June 28,December 27, 2022 and June 29,December 28, 2021, respectively. The costs are 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 $2,056,000 for the quarter ended June 28, 2022. Good Times Impairment costs for the three quarters ended June 28, 2022 were $790,000 due to the asset impairments of three Good Times restaurants. Bad Daddy’s impairment costs for the three quarters ended June 28, 2022 were $1,266,000 due to the impairment of one Bad Daddy’s restaurant.
Gain on Restaurant Asset Sales and Lease Termination. The gain on restaurant asset sales and lease termination for the three quartersquarter ended June 28,December 27, 2022 was $666,000zero, which is composed of a net $8,000 loss on disposal of miscellaneous assets, offset by $8,000 of deferred gains, compared to $28,000$614,000 for the three quartersquarter ended June 29,December 28, 2021, primarily relatedof which $607,000 is attributable to the termination ofgains in connection with a lease oftermination at a good times restaurant. TheGood Times restaurant and the remainder being relatedprimarily attributable to pastdeferred gains on prior sale-leaseback transactions of certain Good Times restaurantsrestaurants.
Income (Loss) from Operations. Income from operations was $188,000$107,000 in the three quartersquarter ended June 28,December 27, 2022 compared to income from operations of $5,311,000$1,276,000 in the three quartersquarter ended June 29,December 28, 2021.
The change in the income from operations for the three quartersquarter ended June 28,December 27, 2022 is due primarily due to matters discussed in the relevant“Net Revenues,” “Restaurant Operating Costs,” “General and Administrative Costs”, “Advertising Costs”, and “Gain on Restaurant Sales and Lease Termination” sections above.
Interest and other expense, net.Expense. Interest and other expense net was $41,000$12,000 during the three quartersquarter ended June 28,December 27, 2022, comparedprimarily related to $244,000 in the three quarters ended June 29, 2021. The $203,000 reduction is primarily due to lower interest costs attributable to there being no outstanding long-term debt in the current year. The remaining interest expense is attributable to commitment fees and the amortization of loan costs associatedinitiation fees, compared with $18,000 during the Cadence Credit Facility.quarter ended December 28, 2021.
Gain on Debt Extinguishment. There was no gain on debt extinguishment for the three quarters ended June 28, 2022 compared to $11,778,000 for the three quarters ended June 29, 2021. The gain in the prior year to date was related to forgiveness of PPP loans by the SBA.
Litigation Contingencies. The Company recorded a contingent loss of $332,000 during the three quarters ended June 28, 2022 related to in-process litigation. No similar losses were recorded during the same prior year period.
Provision for Income Taxes. ProvisionThere was no provision for income taxes was $9,000 for the three quartersquarter ended JuneDecember 27, 2022, compared to $8,000 for the quarter ended December 28, 2022, primarily associated with estimated cash taxes due for state income tax.2021.
Net Income (Loss). Net Incomeincome was $147,000$95,000 for the three quartersquarter ended June 28,December 27, 2022 compared to net income of $16,846,000$1,258,000 in the three quartersquarter ended June 29,December 28, 2021.
The change from the three quartersquarter ended June 28,December 27, 2022 to the three quartersquarter ended June 29,December 28, 2021 was primarily attributable to the matters discussed in the 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.
For the three quartersquarter ended June 28,December 27, 2022, the income attributable to non-controlling interests was $1,489,000$222,000 compared to $1,313,000$920,000 for the three quartersquarter ended June 29,December 28, 2021.
Of the threecurrent quarter’s income attributable to non-controlling interests, $1,025,000$179,000 is attributable to Bad Daddy’s joint-venture restaurants, compared to $688,000$684,000 in the same prior year period. Income attributableThis $505,000 decrease is primarily due 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 in the quarter ended December 28, 2021 related to a rebate of payroll costs, partially offset by slightly decreased restaurant level profitability in the current fiscal quarter. The remaining $464,000Of the current quarter’s income, $43,000 is attributable to the Good Times joint-venture restaurants, compared to $625,000$236,000 in the same prior year period,period. This $193,000 decrease is primarily attributabledue to reduceddecreased restaurant level profitability in those joint venture restaurants.the current fiscal quarter. Subsequent to the quarter ended December 27, 2022, the Company acquired all of the membership interests in five Bad Daddy’s as described in Note 17 to the unaudited, consolidated financial statements included in this report.
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.
The following table reconciles net income/lossloss/income to EBITDA and Adjusted EBITDA (in thousands) for the thirdfirst fiscal quarter and year-to-date:quarter:
| | | Quarter Ended | | | Year-to-Date | | | Quarter Ended | |
| | | June 28, 2022
(13 Weeks) | | | June 29, 2021
(13 Weeks) | | | June 28, 2022
(39 Weeks) | | | June 29, 2021
(39 Weeks) | | | December 27, 2022
(13 Weeks) | | | December 28, 2021
(13 Weeks) | |
| Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income (Loss), as reported | | $ | 469 | | | $ | 13,634 | | | $ | (1,351 | ) | | $ | 15,533 | | |
| Depreciation and amortization | | | 951 | | | | 925 | | | | 2,933 | | | | 2,745 | | |
| Net (loss) income, as reported | | | $ | (127 | ) | | $ | 330 | |
| Depreciation and amortization1 | | | | 867 | | | | 1,004 | |
| Interest expense, net | | | 12 | | | | 67 | | | | 41 | | | | 245 | | | | 12 | | | | 18 | |
| Provision for income taxes | | | 1 | | | | - | | | | 9 | | | | - | | | | - | | | | 8 | |
| EBITDA | | | 1,433 | | | | 14,626 | | | | 1,632 | | | | 18,523 | | | | 752 | | | | 1,360 | |
| Preopening expense | | | - | | | | 301 | | | | 50 | | | | 420 | | | | - | | | | 50 | |
| Non-cash stock-based compensation | | | 60 | | | | 50 | | | | 208 | | | | 326 | | | | 46 | | | | 95 | |
| Asset Impairment | | | 303 | | | | - | | | | 2,056 | | | | - | | |
| GAAP rent-cash rent difference | | | (103 | ) | | | (108 | ) | | | (286 | ) | | | (280 | ) | | | (124 | ) | | | (73 | ) |
Loss (Gain on restaurant asset sales
and lease termination | | | (9 | ) | | | (9 | ) | | | (528 | ) | | | (28 | ) | |
One-time special allocation to Bad
Daddy’s Partnerships | | | - | | | | - | | | | 516 | | | | - | | |
| Gain on debt extinguishment | | | | | | | (11,778 | ) | | | | | | | (11,778 | ) | |
| Litigation contingencies | | | - | | | | - | | | | 332 | | | | - | | |
| Gain on restaurant asset sales and lease termination2 | | | | - | | | | (484 | ) |
| One-time special allocation to Bad Daddy’s partnerships | | | | - | | | | 516 | |
| Adjusted EBITDA | | $ | 1,684 | | | $ | 3,082 | | | $ | 3,980 | | | $ | 7,183 | | | $ | 674 | | | $ | 1,464 | |
1Depreciation and amortization expense has been reduced by amounts attributable to non-controlling interests of $63,00066,000 and $49,000$67,000 for the quarters ended June 28,December 27, 2022 and June 29,December 28, 2021, respectively.
Gain on restaurant asset sales and lease termination has not been reduced by any amounts for the quarter ended June 28, 2022 and June 29, 2021, respectively. 2Gain on restaurant asset sales and lease termination has been reduced by amounts attributable to non-controlling interests of $138,000 and zero$130,000 for the three quartersquarter ended JuneDecember 28, 2022 and June 29, 2021, respectively.
Amount represents the portion of a payroll cost rebate attributable to the non-controlling partners in these partnerships.
Liquidity and Capital Resources
Cash and Working Capital
As of June 28,December 27, 2022, we had a working capital deficit of $433,000.$2,042,000. 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. Although we have negotiated payment terms of up to four weeks with many of our vendors, we pay our primary foodservice vendors on 1-3 day payment terms to take advantage of early pay discounts and generally pay most outstanding accounts payable immediately 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, recurring operating costs and recurring capital expenditure needs throughout fiscal 2023. As of June 28,December 27, 2022, we had no commitments related to construction contracts for any restaurants currently under development.
The
On January 31, 2022 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 numberamount of shares repurchasedrepurchases will depend on a variety of factors, includingupon the Company’s stock price, general businesseconomic and market conditions, regulatory requirements, and alternative investment opportunities. As of June 28, 2022 the Company has repurchased 169,648 shares of its common stock pursuant to the share repurchase plan leaving approximately $4,395,000 available for repurchases under the plan.other corporate considerations.
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 $8,000,000, withwhich as of December 27, 2022 had a maturity date of January 31, 2023 (as amended, the(the “Cadence Credit Facility”). As amended by the various amendments, theThe Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. As of June 28,December 27, 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 Bankbank 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 electsselects to pay interest based on the base rate and at the end of each LIBOR period if it electsselects 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.
During the fiscal quarter ended March 29,December 27, 2022, the Company entered into an amendmentweighted average interest rate applicable to borrowings under the Cadence Credit Facility 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 described above.was 7.8%.
As of June 28, 2022, theThe Cadence Credit Facility 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 28,December 27, 2022, the Company was in compliance with all 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 remaining amount to be amortized as of December 27, 2022 is $13,000. 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 28, 2022,the date of filing this Form 10-Q, 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 28, 2022,filing this Form 10-Q, there were no outstanding letters of credit issued under the facility.
On January 24, 2023, subsequent to the end of the fiscal quarter ended December 27, 2022, the Company and Cadence amended the Cadence Credit Facility to extend its expiration date to April 30, 2023, to provide consent for the Company’s acquisition of certain non-controlling interests in Bad Daddy’s limited liability company partnerships, and to provide pro-forma credit for a portion of the full-year EBITDA, as that term is defined in the Cadence Credit Facility previously attributed to the non-controlling partners in those limited liability company partnerships. The Company is currently reviewing its future credit facility needs and expects to negotiate an amendment to the existing credit agreement or enter into a new credit agreement prior to the current maturity date of April 30, 2023.
Cash Flows
Net cash provided byused in operating activities was $4,418,000$153,000 for the three quartersquarter ended June 28,December 27, 2022. The net cash used in operating activities for the three quartersquarter ended June 28,December 27, 2022 was the result of net income of $138,000$95,000 as well as cash and non-cash reconciling items totaling $4,280,000.$248,000. These reconciling items are primarily comprised of 1) depreciation and amortization of general assets of $3,129,000,$932,000, 2) amortization of operating lease assets of $2,908,000,$988,000, 3) impairmentdecrease of long-livedROU assets of $2,056,000$608,000 4) stock-based compensation expense of $207,000$46,000, 5) a net gain on lease terminationsales and deferred gain on sale/leasebackdisposals of restaurants of $666,000, 6) A decrease in ROU assets of $57,000, 7) Income tax provision of $9,000, 8)$1,000, 5) an increase in prepaidsreceivables and other assets of $742,000, primarily attributable to$1,499,000, 5) an increase in prepaid rent, 9) an increase indeferred liabilities and accrued expenses of $1,123,000, 10) a decrease$248,000, 7) an increase in accounts payable of $529,000, 11)$162,000 and 8) a net decrease in amounts related to our operating lease liabilitiesleases of $3,262,000 and 12) An net increase of $10,000 in inventory, other receivables, and deposits and other assets.$1,734,000.
Net cash provided by operating activities was $7,386,000$219,000 for the three quartersquarter ended June 29,December 28, 2021. The net cash provided by operating activities for the three quartersquarter ended June 29,December 28, 2021 was the result of net income of $16,846,000 offset by$1,250,000 as well as cash and non-cash reconciling items totaling $9,460,000.$1,469,000. These reconciling items are primarily comprised of 1) depreciation and amortization of general assets of $2,920,000,$1,078,000, 2) amortization of operating lease assets of $2,631,000,$757,000, 3) stock-based compensation expense of $327,000,$95,000, 4) gain on debt forgiveness of $11,778,000, 5) an increase in receivables and other assets of $82,000, 6)$961,000, 5) an increase in deferred liabilities and accrued expenses of $264,000, 7)$808,000, 6) a decrease in accounts payable of $820,000$915,000 and 8)7) a net decreaseincrease in amounts related to our operating leases of $2,922,000..$823,000.
Net cash used in investing activities for the three quarters ended June 28, 2022 was $1,606,000 which primarily reflects the general purchases of property and equipment of $1,623,000 and an acquisition of a restaurant from franchisee, net of cash acquired, for $728,000, as well as $745,000 for the proceeds of the sale of a fixed asset. Purchases of property and equipment is comprised of the following:
| · | $936,000 for miscellaneous capital expenditures related to our existing Bad Daddy’s restaurants |
| · | $471,000 for miscellaneous capital expenditures related to our existing Good Times restaurants |
| · | $216,000 for miscellaneous capital expenditures related to our restaurant support center, primarily initial development costs for the 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 quarters ended June 29, 2021 was $2,085,000
which primarily reflects the purchases of property and equipment of $2,098,000. 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 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants |
| · | $82,000 in costs related to remodeling of one Good Times location |
| · | $190,000 for miscellaneous capital expenditures related to our Good Times restaurants |
| · | $204,000 for miscellaneous capital expenditures related to our restaurant support center |
Net cash used in investing activities for the quarter ended December 27, 2022 was $720,000 which primarily reflects the purchases of property and equipment of $724,000, offset by proceeds from the sale of an asset. Purchases of property and equipment is comprised of the following:
| ● | $281,000 for miscellaneous capital expenditures related to our existing Bad Daddy’s restaurants |
| ● | $443,000 for miscellaneous capital expenditures related to our existing Good Times restaurants |
Net cash used in investing activities for the quarter ended December 28, 2021 was $237,000 which primarily reflects the purchases of property and equipment of $237,000. Purchases of property and equipment is comprised of the following:
| ● | $192,000 in costs for the development of new Bad Daddy’s locations |
| ● | $45,000 for miscellaneous capital expenditures related to our existing Bad Daddy’s restaurants |
| ● | $81,000 for miscellaneous capital expenditures related to our existing Good Times restaurants |
Net cash used in financing activities for the three quartersquarter ended June 28,December 27, 2022 was $1,964,000,$1,119,000, which includes proceeds from stock option exercises of $5,000 and distributions to non-controlling interests of $1,449,000$159,000, $92,000 in restricted stock vesting paid in cash, and payment$873,000 in payments for the repurchasepurchase of the Company’s common stock of $605,000 and proceeds from stock option exercise of $90,000.treasury stock.
Net cash used in financing activities for the three quartersquarter ended June 29,December 28, 2021 was $6,454,000,$760,000, which includes principal payments on notes payable and long-term debt of $5,500,000, proceeds fromform stock option exercises of 407,000$6,000 and net distributions to non-controlling interests of $1,361,000.$766,000, the latter including a one-time special allocation of approximately $516,000 to the non-controlling partners in our Bad Daddy’s partnerships related to a rebate of payroll costs.
Impact of Inflation
Commodity prices, particularly for key proteins have recently been at near-record highs and have exhibited extreme volatility. Though we have seen some moderation in certain commodities, we continue to experience higher year-over-year prices on many goods, including food and beverage items, paper and packaging, other restaurant supplies, and energy (utilities) costs. 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 thanvolatility 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,commodity pricing, we are not ableunable to reasonably predict the impact of future inflationary pressures.
In addition to food cost inflation, we have also experienced the need to meaningfully increase wages to attract workers in our restaurants. While we are hopeful that wage rate inflation moderates, the persistent shortage of qualified workers, rather than statutory wage rate increases, which have traditionally created rate pressure, is the primary factor creating upward pressure on our food and packaging costswages, as demand for labor is currently significantly exceeding the balancesupply of the year. qualified workers.
We have adjusted menu prices with intentional discipline, particularly at Bad Daddy’s. The totalhistorically used menu price increases atto manage profitability in times of inflation, however the current unusually high rate of inflation, both of goods and labor, exceeds what we believe we can reasonably pass through to our Good Times restaurants during fiscal 2021 were approximately 8.0%,customers without negatively affecting frequency and we raised menu prices approximately 4.1% on average during the first three quarters of fiscal 2022. We raised menu prices attrial by our Bad Daddy’s restaurants during fiscal 2021 by approximately 3.1% and raised menu prices during the first three quarters of fiscal 2022 by approximately 5.1% 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, if not potentially more frequently, but cannot reasonably predict the magnitude or exact timing of such price adjustments.customers.
Seasonality
Revenues of the Company are subject to seasonal fluctuations based primarily on weather conditions adversely affecting Colorado restaurant sales betweenprimarily during the months of NovemberDecember, January, February, and March.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required.
| 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,10-Q, the Company’s Chief Executive Officer (its principal executive officer) and Senior Vice President of Finance (its principal financial officer) havehas concluded that the Company’s disclosure controls and procedures were effective as of June 28,December 27, 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 28,December 27, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
For a discussion of material legal proceedings affecting the Company, see noteNote 11 to the unaudited, consolidated financial statements included in this report.
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Form 10-K for the fiscal year ended September 28, 2021.27, 2022.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
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 June 28,December 27, 2022 the Company has purchased 169,648660,535 shares of its common stock pursuant to the share repurchase plan leaving approximately $4,395,000$3,165,000 available for repurchases under the plan.
Repurchases of common stock under the share repurchase plan during the quarter ended June 28,December 27, 2022 were as follows:
| 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 | | | Maximum dollar
value of shares
that may yet be
purchased under
the plans or
programs | |
| 3/30/2022 – 4/28/2022 | | | - | | | | - | | | | - | | | | | |
| 4/29/2022 – 5/26/2022 | | | 44,575 | | | $ | 2.80 | | | | 44,575 | | | | | |
| 5/27/2022 – 6/28/2022 | | | 49,173 | | | $ | 2.97 | | | | 49,173 | | | | | |
| Total | | | 93,748 | | | | | | | | | | | $ | 4,395,114 | |
| 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 | | | Maximum dollar
value of shares
that may yet be
purchased under
the plans or
programs | |
| 9/28/2022 - 10/25/2022 | | | 184,803 | | | $ | 2.25 | | | | 184,803 | | | | | |
| 10/26/2022 - 11/22/2022 | | | 126,171 | | | $ | 2.40 | | | | 126,171 | | | | | |
| 11/23/2022 - 12/27/2022 | | | 60,421 | | | $ | 2.57 | | | | 60,421 | | | | | |
| Total | | | 371,395 | | | | | | | | | | | $ | 3,165,000 | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
NoneNone.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
None.
(a) Exhibits. The following exhibits are furnished as part of this report:
*Filed herewith
