UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended ~~June 25,~~December 31, 2019

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number: ~~000-18590~~0-18590


(Exact Name of Registrant as Specified in Its Charter)

NEVADA

84-1133368

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer
Identification Number)

141 UNION BLVD, SUITE 400, LAKEWOOD, CO 80228

(Address of Principal Executive Offices, Including Zip Code)

(303) 384-1400

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock $.001 par value		GTIM		NASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
	Yes x	No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
	Yes x	No o


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


If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
	Yes o	No x

~~As of August 9, 2019, there were 12,541,082~~

As of February 13, 2020, there were 12,577,028 shares of the Registrant's common stock, par value $0.001 per share, issued and outstanding.

~~Title of each class~~		~~Trading Symbol(s)~~		~~Name of each exchange on which registered~~
~~Common Stock, $0.001 par value~~		~~GTIM~~		~~Nasdaq Stock Exchange~~

Form 10-Q

Quarter Ended ~~June 25,~~December 31, 2019

	INDEX	PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets (unaudited) – ~~June 25,~~December 31, 2019 and September ~~25, 2018~~24, 2019	3

	Condensed Consolidated Statements of Operations (unaudited) for the fiscal quarters ended ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018	4

	Consolidated Statement of Stockholders’ Equity (unaudited) for the ~~Period~~period from September ~~26, 2018~~24, 2019 through ~~June 25,~~December 31, 2019	5

	Condensed Consolidated Statements of Cash Flows (unaudited) for the fiscal year-to-date periods ended ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018	76

	Notes to Condensed Consolidated Financial Statements (unaudited)	87 - 15

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1415

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2422

Item ~~4T.~~4.	Controls and Procedures	24
		23
	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	2523

Item 1A.	Risk Factors	2523

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2523

Item 3.	Defaults Upon Senior Securities	2523

Item 4.	Mine Safety Disclosures	2523

Item 5.	Other Information	2523

Item 6.	Exhibits	24

	SIGNATURES	25

	~~Signatures~~	26

	~~Certifications~~CERTIFICATIONS

Table of Contents

PART I. - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Good Times Restaurants Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data)

June 25,
2019 September 25,
2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,619 $ 3,477
Receivables, net of allowance for doubtful accounts of $0 353 1,735
Prepaid expenses and other 451 151
Inventories 1,124 1,004
Notes receivable 13 14
Total current assets 4,560 6,381

PROPERTY AND EQUIPMENT:
Land and building 4,787 5,002
Leasehold improvements 30,740 27,844
Fixtures and equipment 26,316 24,948
Total property and equipment 61,843 57,794
Less accumulated depreciation and amortization (25,177 ) (22,549 )
Total net property and equipment 36,666 35,245

OTHER ASSETS:
Notes receivable, net of current portion 16 32
Deposits and other assets 204 207
Trademarks 3,900 3,900
Other intangibles, net 60 35
Goodwill 15,150 15,150
Total other assets 19,330 19,324

TOTAL ASSETS: $ 60,556 $ 60,950

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations $ - $ 17
Accounts payable 4,253 3,774
Deferred income 72 92
Other accrued liabilities 3,476 4,452
Total current liabilities 7,801 8,335

LONG-TERM LIABILITIES:
Maturities of long-term debt and capital lease obligations due after one year 11,150 7,472
Deferred and other liabilities 8,290 7,922
Total long-term liabilities 19,440 15,394

STOCKHOLDERS’ EQUITY:
Good Times Restaurants Inc. stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares
issued and outstanding as of 06/25/19 and 09/25/18
- -
Common stock, $.001 par value; 50,000,000 shares authorized,
12,522,778 and 12,481,162 shares issued and outstanding as
of 06/25/19 and 09/25/18, respectively
13 12
Capital contributed in excess of par value 57,548 59,385
Accumulated deficit (26,375 ) (25,414 )
Total Good Times Restaurants Inc. stockholders' equity 31,186 33,983

Non-controlling interests 2,129 3,238
Total stockholders’ equity 33,315 37,221

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 60,556 $ 60,950
~~See accompanying notes to condensed consolidated financial statements (unaudited)~~
3
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~~Good Times Restaurants Inc. and Subsidiaries~~
~~Condensed Consolidated Statements of Operations~~
~~(Unaudited)~~
~~(In thousands except share and per share data)~~
Quarter Ended Year-to-Date
June 25, 2019 June 26, 2018 June 25, 2019 June 26, 2018
NET REVENUES:
Restaurant sales $ 29,180 $ 25,990 $ 81,281 $ 71,929
Franchise revenues 277 273 718 778
Total net revenues 29,457 26,263 81,999 72,707

RESTAURANT OPERATING COSTS:
Food and packaging costs 8,529 7,833 23,955 22,154
Payroll and other employee benefit costs 10,677 9,155 30,458 26,076
Restaurant occupancy costs 2,091 1,850 6,221 5,278
Other restaurant operating costs 2,989 2,373 8,401 6,626
Preopening costs 129 610 949 1,683
Depreciation and amortization 1,104 937 3,227 2,665
Total restaurant operating costs 25,519 22,758 73,211 64,482

General and administrative costs 2,144 2,069 6,398 5,884
Advertising costs 666 653 1,841 1,850
Franchise costs 8 11 31 32
Asset impairment costs - - - 72
Loss (gain) on restaurant asset sale 44 (9 ) 5 (26 )

INCOME (LOSS) FROM OPERATIONS: 1,076 781 513 413

Other Expenses:
Interest expense, net (202 ) (96 ) (561 ) (270 )
Other expense (1 ) - (1 ) -
Total other expenses, net (203 ) (96 ) (562 ) (270 )

NET INCOME (LOSS): $ 873 $ 685 $ (49 ) $ 143
Income attributable to non-controlling interests (333 ) (381 ) (912 ) (853 )

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ 540 $ 304 $ (961 ) $ (710 )

BASIC AND DILUTED LOSS PER SHARE:
Net income (loss) attributable to Common Shareholders $ .04 $ .02 $ (.08 ) $ (.06 )

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 12,522,778 12,468,326 12,516,822 12,460,467
Diluted 12,723,323 12,665,172 12,516,822 12,460,467
~~See accompanying notes to condensed consolidated financial statements (unaudited)~~
4
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~~Good Times Restaurants Inc. and Subsidiaries~~
~~Consolidated Statements of Stockholders’ Equity (Unaudited)~~
~~Year-to-Date June 25, 2019~~
(~~In thousands, except share and per share data~~)
Preferred Stock
Common Stock

Issued
Shares Par
Value Issued
Shares Par
Value Capital
Contributed in
Excess of Par
Value Non-
Controlling
Interest In
Partnerships Accumulated
Deficit Total

BALANCES, September 26, 2018 - $ - 12,481,162 $ 12 $ 59,385 $ 3,238 $ (25,414 ) $37,221

Stock-based compensation cost 112 112
Restricted stock unit vesting 40,949 1 1
Stock option exercise 667 3 3
Income attributable to non-controlling
interests
309 309
Distributions to unrelated limited partners (478 ) (478)
Net loss attributable to Good Times
Restaurants Inc and comprehensive loss
0 0 0 0 0 0 (1,051 ) (1,051)

BALANCES, December 25, 2018 - $ - 12,522,778 $ 13 $ 59,500 $ 3,069 $ (26,465 ) $36,117

Stock-based compensation cost 109 109
Income attributable to non-controlling
interests
270 270
Distributions to unrelated limited
partners
(408 ) (408)
Purchase of non-controlling interest (2,171 ) (788 ) (2,959)
Net loss attributable to Good Times
Restaurants Inc and comprehensive loss
0 0 0 0 0 0 (450 ) (450)

BALANCES, March 26, 2019 - $ - 12,522,778 $ 13 $ 57,438 $ 2,143 $ (26,915 ) $32,679

Stock-based compensation cost 110 110
Income attributable to non-controlling
interests
333 333
Distributions to unrelated limited
partners
(367 ) (367)
Contributions from unrelated limited
partners
20 20
Net income attributable to Good Times
Restaurants Inc and comprehensive income
0 0 0 0 0 0 540 540

BALANCES, June 25, 2019 - $ - 12,522,778 $ 13 $ 57,548 $ 2,129 $ (26,375 ) $33,315
~~See accompanying notes to condensed consolidated financial statements (unaudited)~~
5
~~Table of Contents~~
~~Good Times Restaurants Inc. and Subsidiaries~~
~~Consolidated Statements of Stockholders’ Equity (Unaudited)~~
~~Year-to-Date June 26, 2018~~
(~~In thousands, except share and per share data~~)

Preferred Stock

Common Stock

Issued
Shares Par
Value Issued
Shares Par
Value Capital
Contributed in
Excess of Par
Value Non-
Controlling
Interest In
Partnerships Accumulated
Deficit Total

BALANCES, September 27, 2017 - $ - 12,427,280 $ 12 $ 58,939 $ 2,713 $ (24,380 ) $ 37,284

Stock-based compensation cost 118 118
Restricted stock unit vesting 41,046 -
Income attributable to non-controlling
interests
173 173
Distributions to unrelated limited
partners
(256 ) (256 )
Net loss attributable to Good Times
Restaurants Inc and comprehensive loss
0 0 0 0 0 0 (583 ) (583 )

BALANCES, December 26, 2017 - $ - 12,468,326 $ 12 $ 59,057 $ 2,630 $ (24,963 ) $ 36,736

Stock-based compensation cost 97 97
Income attributable to non-controlling
interests
299 299
Distributions to unrelated limited
partners
(242 ) (242 )
Contributions from unrelated limited
partners
17 17
Net loss attributable to Good Times
Restaurants Inc and comprehensive loss
0 0 0 0 0 0 (431 ) (431 )

BALANCES, March 27, 2018 - $ - 12,468,326 $ 12 $ 59,154 $ 2,704 $ (25,394 ) $ 36,476

Stock-based compensation cost 88 88
Income attributable to non-controlling
interests
381 381
Distributions to unrelated limited
partners
(492 ) (492 )
Contributions from unrelated limited
partners
561 561
Net income attributable to Good Times
Restaurants Inc and comprehensive loss
0 0 0 0 0 0 304 304

BALANCES, June 26, 2018 - $ - 12,468,326 $ 12 $ 59,242 $ 3,154 $ (25,090 ) $ 37,318
~~See accompanying notes to condensed consolidated financial statements (unaudited)~~
6
~~Table of Contents~~
~~Good Times Restaurants Inc. and Subsidiaries~~
~~Condensed Consolidated Statements of Cash Flows~~
~~(Unaudited)~~
~~(In thousands)~~
Year-to-Date
June 25, 2019 June 26, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (49 ) $ 143

Adjustments to reconcile net income (loss) to net cash provided by operating
activities:

Depreciation and amortization 3,417 2,849
Accretion of deferred rent 429 414
Amortization of lease incentive obligation (374 ) (313 )
Asset impairment costs - 72
Stock-based compensation expense 331 303
Recognition of deferred gain on sale of restaurant building (27 ) (26 )
Loss on disposal of restaurant assets 58 -
Changes in operating assets and liabilities:
Change in:
Receivables and other 1,381 (128 )
Inventories (120 ) (59 )
Deposits and other (356 ) (59 )
Change in:
Accounts payable 367 194
Deferred liabilities 368 1,258
Accrued and other liabilities (1,023 ) (21 )
Net cash provided by operating activities 4,402 4,627

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment (4,716 ) (6,560 )
Payments for the purchase of non-controlling interests (3,009 ) -
Proceeds from sale leaseback transaction - 1,397
Proceeds from sale of fixed assets 8 -
Payments received from franchisees and others 17 10
Net cash used in investing activities (7,700 ) (5,153 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and long-term debt 6,150 1,400
Principal payments on notes payable and long-term debt (2,480 ) (1,613 )
Proceeds from stock option exercise 3 -
Net distributions paid to non-controlling interests (1,233 ) (412 )
Net cash provided by (used in) financing activities 2,440 (625 )

NET CHANGE IN CASH AND CASH EQUIVALENTS (858 ) (1,151 )

CASH AND CASH EQUIVALENTS, beginning of period 3,477 4,337

CASH AND CASH EQUIVALENTS, end of period $ 2,619 $ 3,186

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 496 $ 276
Change in accounts payable attributable to the purchase of
property and equipment $ 112 $ 942
December 31, 2019 September 24, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,292 $ 2,745
Receivables, net of allowance for doubtful accounts of $0 674 810
Prepaid expenses and other 848 220
Inventories 1,205 1,128
Notes receivable 12 12
Total current assets 6,031 4,915
PROPERTY AND EQUIPMENT:
Land and building 4,787 4,787
Leasehold improvements 32,794 32,393
Fixtures and equipment 28,199 27,597
Total property and equipment 65,780 64,777
Less accumulated depreciation and amortization (30,198 ) (29,100 )
Total net property and equipment 35,582 35,677
OTHER ASSETS:
Operating lease right-of-use assets, net 51,941 -
Notes receivable, net of current portion 10 13
Deposits and other assets 231 199
Trademarks 3,900 3,900
Other intangibles, net 41 51
Goodwill 15,150 15,150
Total other assets 71,273 19,313

TOTAL ASSETS: $ 112,886 $ 59,905
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,076 $ 3,774
Deferred income 79 79
Operating lease liabilities, current 4,611 -
Other accrued liabilities 6,018 5,375
Total current liabilities 13,784 9,228
LONG-TERM LIABILITIES:
Maturities of long-term debt due after one year 14,350 12,850
Operating lease liabilities, net of current portion 56,393 -
Deferred and other liabilities 308 8,907
Total long-term liabilities 71,051 21,757
STOCKHOLDERS’ EQUITY:
Good Times Restaurants Inc. stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding as of 12/31/19 and 9/24/19 - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 12,577,028 and 12,541,082 shares issued and
outstanding as of 12/31/19 and 09/24/19, respectively 13 13
Capital contributed in excess of par value 58,010 57,936
Treasury stock-at cost-shares 43,110 and 0, respectively (75 ) -
Accumulated deficit (31,362 ) (30,551 )
Total Good Times Restaurants Inc. stockholders' equity 26,586 27,398

Non-controlling interests 1,465 1,522
Total stockholders’ equity 28,051 28,920

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 112,886 $ 59,905

See accompanying notes to condensed consolidated financial statements (unaudited)

7 3
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Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except share and per share data)
Quarter Ended
December 31, 2019
(14 Weeks) December 25, 2018
(13 Weeks)
NET REVENUES:
Restaurant sales $ 30,593 $ 25,147
Franchise revenues 221 218
Total net revenues 30,814 25,365

RESTAURANT OPERATING COSTS:
Food and packaging costs 9,032 7,523
Payroll and other employee benefit costs 11,819 9,553
Restaurant occupancy costs 2,438 1,965
Other restaurant operating costs 3,276 2,670
Preopening costs 802 627
Depreciation and amortization 1,079 1,034
Total restaurant operating costs 28,446 23,372

General and administrative costs 2,213 1,974
Advertising costs 546 623
Franchise costs - 7
Gain on restaurant asset sale (19 ) (30 )

LOSS FROM OPERATIONS (372 ) (581 )

Other expenses:
Interest expense, net (227 ) (160 )
Other expenses - (1 )
Total other expenses, net (227 ) (161 )

NET LOSS (599 ) (742 )

Income attributable to non-controlling interests (212 ) (309 )

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (811 ) $ (1,051 )

BASIC AND DILUTED LOSS PER SHARE:
Net loss attributable to Common Shareholders $ (.06 ) $ (.08 )

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted 12,596,960 12,504,909
See accompanying notes to condensed consolidated financial statements (unaudited)
4
Table of Contents
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Unaudited)
For the fiscal quarters ending December 31, 2019 and December 25, 2018
(In thousands, except share and per share data)
Treasury Stock,
at cost Common Stock
Shares Amount Issued
Shares Par
Value Capital
Contributed in
Excess of Par
Value Non-
Controlling
Interest In
Partnerships Accumulated
Deficit Total

BALANCES, September 24, 2019 - $ - 12,541,082 $ 13 $ 57,936 $ 1,522 $ (30,551 ) $ 28,920

Stock-based compensation cost - - - - 74 - - 74
Restricted stock unit vesting - - 76,643 - - - - -
Stock option exercise - - 2,413 - - - - -
Non-controlling interests:
Treasury shares purchased 43,110 (75 ) (43,110 ) - - - - (75 )
Income - - - - - 212 - 212
Contributions - - - - - 22 - 22
Distributions - - - - - (291 ) - (291 )
Net Loss attributable to Good Times
Restaurants Inc and comprehensive loss - - - - - - (811 ) (811 )

BALANCES, December 31, 2019 43,110 (75 ) 12,577,028 13 58,010 1,465 (31,362 ) 28,051

BALANCES, September 26, 2018 - - 12,481,162 $ 12 $ 59,385 $ 3,238 $ (25,414 ) $ 37,221

Stock-based compensation cost - - - - 112 - - 112
Restricted stock unit vesting - - 40,949 1 - - - 1
Stock option exercise - - 667 - 3 - - 3
Non-controlling interests:
Income - - - - - 309 - 309
Contributions - - - - - - - -
Distributions - - - - - (478 ) - (478 )
Net Loss attributable to Good Times
Restaurants Inc and comprehensive loss - - - - - - (1,051 ) (1,051 )

BALANCES, December 25, 2018 - $ - 12,522,778 $ 13 $ 59,500 $ 3,069 $ (26,465 ) $ 36,117
See accompanying notes to consolidated financial statements (unaudited)
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Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Fiscal Year to Date
December 31, 2019 December 25, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (599 ) $ (742 )

Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,126 1,094
Accretion of deferred rent - 126
Amortization of lease incentive obligation - (121 )
Amortization of operating lease assets 1,097 -
Stock-based compensation expense 74 112
Recognition of deferred gain on sale of restaurant building (9 ) (9 )
Changes in operating assets and liabilities:
Receivables and other 135 617
Inventories (77 ) (47 )
Deposits and other (668 ) (452 )
Accounts payable (99 ) 43
Deferred liabilities - 147
Lease incentives receivable 338 -
Operating lease liabilities (951 ) -
Accrued and other liabilities 632 (1,154 )
Net cash provided by (used in) operating activities 999 (386 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment (1,613 ) (2,918 )
Payments for the purchase of treasury stock (75 ) -
Proceeds from the sale of fixed assets 2 -
Payments received from franchisees and others 3 3
Net cash used in investing activities (1,683 ) (2,915 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and long-term debt 2,000 2,750
Principal payments on notes payable and long-term debt (500 ) (4 )
Proceeds from stock option exercise - 3
Contributions from non-controlling interests 22 -
Distributions to non-controlling interests (291 ) (478 )
Net cash provided by financing activities 1,231 2,271

NET CHANGE IN CASH AND CASH EQUIVALENTS 547 (1,030 )

CASH AND CASH EQUIVALENTS, beginning of period 2,745 3,477

CASH AND CASH EQUIVALENTS, end of period $ 3,292 $ 2,447

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 253 $ 125
Change in accounts payable attributable to the purchase of
property and equipment $ (599 ) $ (782 )
See accompanying notes to condensed consolidated financial statements (Unaudited)
6
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GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular dollar amounts in thousands, except share and per share data)

Note 1.

Basis of Presentation

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

BD of Colo was formed by Good Times Restaurants Inc. in 2013 to develop Bad Daddy’s Burger Bar restaurants in the state of Colorado. Subsequently, BDI and BDFD were acquired by Good Times Restaurants Inc. on May 7, 2015. Combined, these entities compose our Bad Daddy’s operating segment, which as of ~~June 25,~~December 31, 2019, operates ~~twenty-eight~~thirty-two company-owned and five ~~joint venture~~joint-venture full-service ~~upscale~~small-box casual dining restaurants under the name Bad Daddy’s Burger Bar, primarily located in Colorado and in the Southeast region of the United States, franchises one restaurant in South Carolina, and licenses the Bad Daddy’s brand for use at an airport Bad Daddy’s restaurant under third-party operations and ownership.

Drive Thru commenced operations in 1986 and as of ~~June 25,~~December 31, 2019, operates ~~nineteen~~eighteen Company-owned and seven ~~joint venture~~joint-venture drive-thru fast food hamburger restaurants ~~in Colorado~~ under the name Good Times Burgers & Frozen ~~Custard.~~Custard, all of which are located in Colorado. In addition, Drive Thru has eight franchisee-owned restaurants, with six operating in Colorado and two in Wyoming.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (“GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position of the Company as of ~~June 25,~~December 31, 2019 and the results of its operations and its cash flows for the ~~three~~ fiscal quarters ended ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018. Operating results for the ~~three~~ fiscal ~~quarters~~quarter ended ~~June 25,~~December 31, 2019 are not necessarily indicative of the results that may be expected for the year ending September ~~24, 2019.~~29, 2020. The condensed consolidated balance sheet as of September ~~25, 2018~~24, 2019 is derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles. As a result, these condensed consolidated financial statements should be read in conjunction with the Company's Form 10-K for the fiscal year ended September ~~25, 2018.~~24, 2019.

Fiscal Year – The Company’s fiscal year is a 52/53-week year ending on the last Tuesday of September. In a 52-week fiscal year, each of the Company’s quarterly periods consist of 13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks. ~~Neither~~The first quarter of fiscal 2020 ended on December 31, 2019 and consisted of 14 weeks. The first quarter of fiscal 2019 ended on December 25, 2018 ~~or 2019 had a quarter with 14~~and consisted of 13 weeks.

Advertising Costs – We utilize Advertising Funds to administer certain advertising programs for both the Bad Daddy’s and Good Times brands that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to the fund. As the contributions to these funds are designated and segregated for advertising. We consolidate the Advertising Funds into our financial statements whereby contributions from franchisees, when received, are recorded and included as a component of franchise revenues. As we intend to utilize all of the advertising contributions towards advertising expenditures, we recognize costs equal to franchisee contributions to the advertising funds on a quarterly basis. Contributions to the Advertising Funds from our franchisees were ~~$240,000~~$58,000 and ~~$263,000~~$67,000 for the ~~first three~~ quarters ofended December 31, 2019 and December 25, 2018, respectively.

Reclassification – Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on the net loss.

Note 2.

Updates to Significant Accounting Policies

Leases

On September 25, 2019, the first day of fiscal year 2020, the Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)." As a result, the Company updated its significant accounting policy for leases. For the impact of the adoption on the Company's consolidated financial statements see Note 3, Recent Accounting Pronouncements and for additional information about our lease arrangements see Note 11, Leases in the notes to our unaudited condensed consolidated financial statements.

The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate office. The lease term begins on the date that the Company takes possession under the lease, including the pre-opening period during construction, when in most cases the Company is not making rent payments (“Rent Holiday”).

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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.

Note 3.

Recent Accounting Pronouncements

Leases

The Company adopted ASU 2016-02 Leases (Topic 842) on September 25, 2019, the first day of fiscal year 2020. This update requires a lessee to recognize on the balance sheet the right-of-use assets and lease liabilities for leases with a lease term of more than twelve months. This update also requires additional disclosures about the amount, timing, and uncertainty of cash flows arising from leases. This standard is effective for interim and annual periods beginning after December 15, 2018.

We elected the optional transition method option to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in our consolidated financial statements. The adoption of this standard had a significant impact on the Company’s consolidated balance sheet as we recognized the right-of-use assets and lease liabilities for our operating leases. The adoption had an immaterial impact on the condensed consolidated statement of operations, cash flows and overall liquidity.

We elected to utilize the three practical expedients permitted within the standard, which eliminates the requirement to reassess the conclusions about historical lease identifications, lease classifications, and initial direct costs. We did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease terms and impairments of right-of-use assets. Additionally, we elected to utilize the short-term lease exception policy, which allows us to not apply the recognition requirements of this standard to leases with a term of 12 months or less.

The effect of the changes made to the Company's condensed consolidated balance sheet as of September 25, 2019 for the adoption of ASU 2016-02 Leases (Topic 842) are as follows:

(Tabular dollar amounts in thousands)

Assets	September 24, 2019		Adoption of Leases (Topic 842)			September 25, 2019
Non-current assets:
Operating lease assets		-		51,165			51,165
Liabilities
Current Liabilities:
Operating lease liability		-		4,346			4,346
Non-current liabilities:
Accrued deferred rent		2,881		(2,881	)		-
Deferred lease incentives		5,698		(5,698	)		-
Operating lease liabilities, less current portion		-		55,398			55,398

The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on the Company's consolidated financial statements.

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Note 4.

Revenue

~~In May 2014, the Financial Accounting Standards Board issued~~~~Revenue from Contracts with Customers~~ (“Topic 606), which was subsequently amended by several Accounting Standards Updates. These new or updated standards expanded the disclosure requirements related to revenue and revenue recognition. The Company adopted Topic 606 in the first quarter of its 2019 fiscal year and applied the guidance retrospectively to the prior periods presented. Topic 606 primarily impacts the accounting presentation of the Company’s advertising contribution funds. Because advertising expenses are incurred within the respective year in which contributions are recorded, there was no change to the consolidated balance sheet, however for the first three fiscal quarters of 2018 franchise revenues and advertising costs are each $263,000 greater than originally presented, and for the first three fiscal quarters of 2019 franchise revenues and advertising costs are each $240,000 greater than would have been reflected under the former presentation.

Revenue Recognition

Revenues consist primarily of sales from restaurant ~~operations and~~operations; franchise revenue, which includes franchisee ~~royalties and~~ contributions to advertising funds. Revenues associated with gift card breakage are immaterial to our financials. The Company recognizes revenue, pursuant to the new and updated standards, when it satisfies a performance obligation by transferring control over a product or service to a customer, typically a restaurant customer or a franchisee/licensee.

The Company recognizes revenues in the form of restaurant sales at the time of the sale when payment is made by the customer, as the Company has completed its performance obligation, namely the provision of food and beverage, and the accompanying customer service, during the customer’s visit to the restaurant. The Company sells gift cards to customers and recognizes revenue from gift cards primarily in the form of restaurant revenue. Gift Card breakage, which is recognized when the likelihood of a gift card being redeemed is remote, is determined based upon the Company’s historic redemption patterns, and is immaterial to our overall financial statements.

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Revenues we receive from our franchise and license agreements include sales-based royalties, and from our franchise agreements also may include advertising fund contributions, area development fees, and franchisee fees. We recognize sales-based royalties from franchisees and licensees as the underlying sales occur. We similarly recognize advertising fund contributions from franchisees as the underlying sales occur. The Company also provides its franchisees with services associated with opening new restaurants and operating them under franchise and development agreements in exchange for area development and franchise fees. The Company would capitalize these fees upon receipt from the franchisee and then would amortize those over the contracted franchise term as the services comprising the performance obligations are satisfied. We have not received material development or franchise fees in the years presented, and the primary performance obligations under existing franchise and development agreements have been satisfied prior to the earliest period presented in our financial statements.

Note 3.

Goodwill and Intangible Assets

The following table presents goodwill and intangible assets as of ~~June 25,~~December 31, 2019 and September ~~25, 2018:~~24, 2019 (in thousands):

	June 25, 2019							September 25, 2018							December 31, 2019							September 24, 2019
		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible assets subject to amortization
Intangible assets subject to amortization:
Franchise rights		116		(98	)		18		116		(81	)		35	$	116	$	(110	)	$	6	$	116	$	(104	)	$	12
Non-compete agreements		65		(23	)		42		15		(15	)		-		50		(15	)		35		65		(26	)		39
	$	181	$	(121	)	$	60	$	131	$	(96	)	$	35		166		(125	)		41		181		(130	)		51
Indefinite-lived intangible assets:
Trademarks	$	3,900	$	-		$	3,900	$	3,900	$	-		$	3,900		3,900		-			3,900		3,900		-			3,900
Intangible assets, net	$	4,081	$	(121	)	$	3,960	$	4,031	$	(96	)	$	3,935	$	4,066	$	(125	)	$	3,941	$	4,081	$	(130	)	$	3,951

Goodwill	$	15,150	$	-		$	15,150	$	15,150	$	-		$	15,150	$	15,150	$	-		$	15,150	$	15,150	$	-		$	15,150

The Company had no goodwill impairment losses in the periods presented in the above table or any prior periods.

In February 2019 the Company acquired all of the membership interests of three joint venture entities to which the Company was already a party to and the transaction resulted in an increase to non-compete agreements of $50,000, see Note 11.

There were no impairments to intangible assets during the ~~three quarters~~quarter ended ~~June 25, 2019 and June 26, 2018.~~December 31, 2019. The aggregate amortization expense related to these intangible assets subject to amortization was ~~approximately $25,000~~$10,000 for the ~~three quarters ended June 25,~~quarter December 31, 2019.

The estimated aggregate future amortization expense as of ~~June 25,~~December 31, 2019 is as ~~follows:~~follows (in thousands):

Remainder of 2019 $ 9
2020 28
2021 17
2022 6
$ 60

Remainder of 2020	$	18
2021		17
2022		6
	$	41

Note 4.

Common Stock

On January 26, 2015, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission ("SEC") which was declared effective by the SEC on March 25, 2015. The registration statement allows the Company to issue common stock from time to time up to an aggregate amount of $75 million, of which $22,688,052 has been issued.

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Note 5.

Stock-Based Compensation

The Company has traditionally maintained incentive compensation plans that include provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, the 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”) during the third fiscal quarter of 2018, pursuant to shareholder approval. Future awards will be issued under the 2018 plan.

Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). The ~~company~~Company recognizes the impact of forfeitures as forfeitures occur.

Our net loss for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018 includes ~~$331,000~~$75,000 and ~~$303,000,~~$112,000, respectively, of compensation costs related to our stock-based compensation arrangements.

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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 quarters~~quarter ended ~~June 25,~~December 31, 2019. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.

During the ~~three quarters~~quarter ended ~~June~~December 31, 2019, there were no incentive stock options granted.

During the quarter ended December 25, ~~2019,~~2018, the Company granted a total of 99,832 incentive stock options, from available shares under its 2018 Plan, with exercise prices between $4.66 and $5.00 and per-share weighted average fair values between $2.68 and $3.16.

During the three quarters ended June 26, 2018, the Company granted a total of 18,274 incentive stock options, from available shares under its 2008 Plan, as amended, with an exercise prices between $2.70 and $2.73 and per-share weighted average fair values between $1.65 and $1.95.

In addition to the exercise and grant date prices of the stock option awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the following table:

Year-to-Date
June 25, 2019
Incentive and
Non-Qualified
Stock Options June 26, 2018
Incentive and
Non-Qualified
Stock Options
Expected term (years) 7.5 7.5
Expected volatility 70.65% to 70.80% 75.33 % to 75.67%
Risk-free interest rate 3.01% to 3.10% 2.17% to 2.35%
Expected dividends - -

	Quarter Ended December 25, 2018 Incentive and Non-Qualified Stock Options

Expected term (years)		7.5
Expected volatility		70.65% to 70.80%
Risk-free interest rate		3.01% to 3.10%
Expected dividends		-

We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.

The following table summarizes stock option activity for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 under all plans:

Shares Weighted
Average
Exercise Price Weighted Avg.
Remaining
Contractual Life (Yrs.)
Outstanding-at beginning of year 634,647 $ 3.36
Options granted 99,832 $ 4.76
Options exercised (667 ) $ 4.41
Forfeited (10,881 ) $ 3.87
Expired (17,203 ) $ 4.41
Outstanding June 25, 2019 705,728 $ 3.52 6.3
Exercisable June 25, 2019 436,967 $ 3.23 4.9

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

Outstanding at beginning of year		703,164		$	3.53
Options exercised		(15,646	)	$	1.48
Expired		(8,579	)	$	3.45
Outstanding December 31, 2019		678,939		$	3.57	5.9
Exercisable December 31, 2019		478,730		$	3.40	5.0

As of ~~June 25,~~December 31, 2019, the aggregate intrinsic value of the outstanding and exercisable options was ~~approximately $17,000~~$2,000 and ~~$17,000,~~$2,000, respectively. Only options whose exercise price is below the current market price of the underlying stock are included in the intrinsic value calculation.

As of ~~June 25,~~December 31, 2019, the total remaining unrecognized compensation cost related to non-vested stock options was ~~$570,000~~$319,000 and is expected to be recognized over a weighted average period of approximately ~~2.3~~2 years.

There were 15,646 stock options exercised that resulted in an issuance of 2,413 shares during the quarter ended December 31, 2019 with no proceeds in conjunction with the termination of the Company’s CEO pursuant to a severance and separation agreement. There were 667 stock options exercised during the ~~three quarters~~quarter ended ~~June~~December 25, ~~2019~~2018 with proceeds of approximately $3,000. ~~There were no stock options exercised during the three quarters ended June 26, 2018.~~

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Restricted Stock Units

During the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019, the Company granted a total of ~~79,988~~46,336 restricted stock units from available shares under its 2018 Plan. The shares were issued with a grant date fair market value of $1.54 which is equal to the closing price of the stock on the date of the grant. The restricted stock units vest three years following the grant date.

During the quarter ended December 25, 2018, the Company granted a total of 79,988 shares of restricted stock from available shares under its 2008 Plan, as amended. The shares were issued with a grant date fair market value of $3.95 which is equal to the closing price of the stock on the date of the grant. The restricted stock ~~units vest over three years following the grant date.~~

During the three quarters ended June 26, 2018, the Company granted a total of 37,037 shares of restricted stock from available shares under its 2008 Plan, as amended. The shares were issued with a grant date fair market value of $2.70 which is equal to the closing price of the stock on the date of the grant. The restricted stock grant vests over three years following the grant date.

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A summary of the status of non-vested restricted stock as of ~~June 25,~~December 31, 2019 is presented below.

					Shares			Grant Date Fair Value Per Share
	Shares			Grant Date Fair Value Per Share
Non-vested shares at beginning of year		149,614		$2.70 to $4.18		165,275		$2.70 to $3.95
Granted		79,988		$3.95		46,336		$1.54
Vested		(44,158	)	$2.70 to $4.18		(86,499	)	$2.70 to $4.18
Non-vested shares at June 25, 2019		185,444		$2.70 to $4.18
Non-vested shares at December 31, 2019						125,112		$2.70 to $4.18

As of ~~June 25,~~December 31, 2019, there was ~~approximately $452,000~~$313,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately ~~1.4~~1.2 years.

Note 6.

Notes Payable and Long-Term Debt

Cadence Credit Facility

The Company maintains a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $17,000,000 with a maturity date of December 31, 2021 (the “Cadence Credit Facility”). On February 21, 2019 the Cadence Credit Facility was amended, in connection with the RGWP Repurchase (see ~~note 11)~~Note 8 to the financial statements), to retroactively attribute EBITDA previously attributed to non-controlling interests to the Company for purposes of certain financial covenants. On December 9, 2019 the Cadence Credit Facility was amended in connection with the separation of the Company’s former CEO, to amend the definition of “Consolidated EBITDA” for the purposes of financial covenants, to require certain installment payments, and to permit the company to make “Restricted Payments” (as defined in the Cadence Credit Facility). In the form of repurchases or redemptions of certain equity interests of the Company from former directors and officers of the Company in an aggregate amount not to exceed $100,000. As amended by the various amendments, the Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. All borrowings under the Cadence Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate, which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence bank publicly-announced prime rate, and (c) LIBOR plus 1.0%, or (ii) LIBOR, with a 0.250% floor, plus 3.5%. Interest is due at the end of each calendar quarter if the Company selects to pay interest based on the base rate and at the end of each LIBOR period if it selects to pay interest based on LIBOR. As of ~~June 25,~~December 31, 2019, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was ~~5.9228%~~5.275%.

The Cadence Credit Facility, as amended, contains certain affirmative and negative covenants and events of default that the Company considers customary for an agreement of this type, including covenants setting a maximum leverage ratio of 5.35:1, a minimum fixed charge coverage ratio of 1.25:1 and minimum liquidity of $2,000,000. As of ~~June 25,~~December 31, 2019, the Company was in compliance with the covenants under the Cadence Credit Facility.

As a result of entering into the Cadence Credit Facility and ~~the~~ various amendments, the Company has paid loan origination costs including professional fees of approximately ~~$232,000~~$292,000 since the inception of the credit facility and is amortizing these costs over the term of the credit agreement.

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

As of ~~June 25,~~December 31, 2019, the outstanding balance on borrowings against the facility was ~~$11,150,000.~~$14,350,000. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of ~~June 25,~~December 31, 2019, the outstanding face value of such letters of credit was $157,500.

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Principal payments on the Cadence Credit Facility are required beginning on March 31, 2020 in $250,000 installments on the last business day each of March, June, September, and December in each calendar year. The total loan commitment is permanently reduced by the corresponding amount of each such repayment on such date. New borrowings are permitted up to the amount of the loan commitment. The note matures and is due in its entirety on December 31, 2021.

Note 7.

Net Income (Loss) per Common Share

Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities for this calculation consist of in-the-money outstanding stock options, restricted stock ~~units~~grants 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~~ Options and restricted stock units for 804,051 and 900,307 shares ~~outstanding to~~of common stock were not included in computing diluted ~~weighted-average shares outstanding:~~

Quarter Ended Year-to-Date
June 25, 2019 June 26, 2018 June 26, 2019 June 26, 2018

Weighted-average shares outstanding-basic 12,522,778 12,468,326 12,516,822 12,460,467
Effect of potentially dilutive securities:
Stock options 15,101 102,506 0 0
Restricted stock units 185,444 94,340 0 0
Weighted-average shares outstanding-diluted 12,723,323 12,665,172 12,516,822 12,460,467
Excluded from diluted weighted-average
shares outstanding:
Antidilutive 654,468 272,348 891,172 747,796

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EPS for the quarters ended December 31, 2019 and December 25, 2018, respectively, because their effects were anti-dilutive.

Note 8.

10.

Contingent Liabilities and Liquidity

We remain contingently liable on various leases underlying restaurants that were previously sold to franchisees. We have never experienced any losses related to these contingent lease liabilities, however if a franchisee defaults on the payments under the leases, we would be liable for the lease payments as the assignor or sub-lessor of the lease. Currently we have not been notified nor are we aware of any leases in default by the franchisees, however there can be no assurance that there will not be in the future which could have a material effect on our future operating results.

Additionally, in the normal course of business, there may be various claims in process, matters in litigation, and other contingencies brought against the company by employees, vendors, customers, franchisees, or other parties. Evaluating these contingencies is a complex process that may involve substantial judgment on the potential outcome of such matters, and the ultimate outcome of such contingencies may differ from our current analysis. We review the adequacy of accruals and disclosures related to such contingent liabilities in consultation with legal counsel. While it is not possible to predict the outcome of these claims with certainty, it is management’s opinion that potential losses associated with such contingencies would be immaterial to our financial statements.

Note 9.11.

Leases

The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate office. The initial lease terms range from 10 years to 20 years, most of which include renewal options of 10 to 15 years. The lease term is generally the minimum of the noncancelable period or the lease term including renewal options which are reasonably certain of being exercised up to a term of approximately 20 years.

Some of the leases provide for base rent, plus additional rent based on gross sales, as defined in each lease agreement. The Company is also generally obligated to pay certain real estate taxes, insurance and common area maintenance charges, and various other expenses related to properties, which are expensed as incurred.

Components of operating lease costs are as follows for the fiscal quarter ended December 31, 2019:

Lease cost	Classification	Total
Operating lease cost	Occupancy, Other restaurant operating costs and General and administrative expenses, net	$	1,934
Variable lease cost	Occupancy		20
Sublease income	Occupancy		(100	)
		$	1,854

Weighted average lease term and discount rate are as follows:

	December 31, 2019
Weighted average remaining lease term (in years)		11.0

Weighted average discount rate		5.0	%

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Supplemental cash flow disclosures for the fiscal quarter ended December 31, 2019:

	December 31, 2019
Cash paid for operating lease liabilities	$	1,713
Non-cash operating lease assets obtained in exchange for operating lease liabilities	$	2,211

Supplemental balance sheet disclosures:

Right-of-use assets	Operating lease assets	$	51,941

Current lease liabilities	Operating lease liability	$	4,611
Non-current lease liabilities	Operating lease liability, less current portion		56,393
Total lease liabilities		$	61,004

Future minimum rent payments for our operating leases for each of the next five years as of December 31, 2019 are as follows:

Fiscal year ending:	Total
Remainder of 2020	$	5,657
2021		7,459
2022		7,382
2023		7,473
2024		7,429
Thereafter		44,719
Total minimum lease payments		80,119
Less: imputed interest		(19,115	)
Present value of lease liabilities	$	61,004

As previously disclosed in our 2019 Annual Report on Form 10-K and under the previous lease accounting, future minimum rent payments for our operating leases for each of the next five years and in total are as follows as of September 24, 2019:

Fiscal year ending:	Total
2020	$	7,256
2021		6,884
2022		6,677
2023		6,348
2024		5,928
Thereafter		18,988
Total minimum lease payments		52,081
Less: sublease rentals		(1,058	)
Net minimum lease payments	$	51,023

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 12.

Impairment of Long-Lived Assets and Goodwill

Long-Lived Assets.We review our long-lived assets ~~for impairment,~~ including land, property and equipment ~~whenever events or changes in circumstances~~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 ~~a comparison of~~comparing the ~~capitalized costs~~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 ~~undiscounted net cash flows expected to be generated by the assets~~projections and ~~the expected cash flows are based on recent historical cash flows at the restaurant level (the lowest level that cash flows can be determined).~~operating results.

~~On January 30, 2018~~Given the ~~Company closed one~~results of our analysis at September 24, 2019, we identified five restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets.

Two of these restaurants are Good Times ~~restaurant~~restaurants in ~~Aurora, Colorado. A~~the greater Denver metropolitan area. We recorded a non-cash ~~impairment~~ charge of ~~$219,000~~$391,000, related to ~~this restaurant was previously taken~~the impairment of these restaurants in the fiscal ~~year ended~~quarter ending September 26, 2017 and no additional loss from disposal of assets has been subsequently recognized in the current year, nor is any additional loss expected. We recorded accretion expense recognized as non-cash rent of approximately $48,000 in the fiscal year ended September 25, 2018, and approximately $73,000 in the three quarters ended June 25, 2019, reflecting the expected fair value of future lease costs, net of sublease income, associated with the closing of this restaurant. Subsequent to the end of the fiscal third quarter24, 2019. In July of 2019, the Company entered into a sublease agreement for one of these two restaurants whereby the Company, upon lease commencement subject to due diligence provisions, will receive sublease income substantially equal to its cash lease costs associated with this location. We continued to operate the restaurant until December 31, 2019 and the sublease commenced in early February 2020.

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~~Given~~Three of these restaurants are Bad Daddy’s restaurants, two in the ~~results~~Denver/front-range communities of our analysis at March 27, 2018, we identified one restaurant where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets. This restaurant, an additional Good Times restaurant in Aurora, Colorado ~~was closed on April 22, 2018.~~and Greenville, South Carolina. We recorded a non-cash ~~charge~~charges of ~~$72,000~~$2,380,000 related to the impairment of ~~this restaurant~~these restaurants during the fiscal quarter ending March 27, 2018. No additional loss from disposal of assets is expected associated with this property. Prior to its closure, on April 6, 2018, the Company entered into a sublease of this property, the terms of which will provide sublease income substantially equal to the lease costs over the approximate 5 remaining years of the lease.September 24, 2019.

Trademarks.Trademarks have been determined to have an indefinite life. We evaluate our trademarks for impairment annually and on an interim basis as events and circumstances warrant by comparing the fair value of the trademarks with their carrying amount. There was no impairment required to the acquired trademarks as of ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018.

Goodwill.Goodwill represents the excess of cost over fair value of the assets of businesses the Company acquired. Goodwill is not amortized, but rather, the Company is required to test goodwill for impairment on an annual basis or whenever indications of impairment arise. The Company considers its operations to be comprised of two reporting units: (1) Good Times restaurants and (2) Bad Daddy’s restaurants. As of ~~June 25,~~December 31, 2019, the Company had $96,000 of goodwill attributable to the Good Times reporting unit and $15,054,000 of goodwill attributable to its Bad Daddy’s reporting unit. No goodwill impairment charges were recognized as of ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018.

Note ~~10.~~

13.

Income Taxes

We account for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted as necessary.

The Company has significant net operating loss carry-forwards from prior years and incurred additional net operating losses during the ~~three~~ quarters ended ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018. These losses resulted in an increase in the related deferred tax assets; however, full valuation allowances were ~~provided~~made which reduced these deferred tax assets to zero; therefore, no income tax provision or benefit was recognized for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018 resulting in an effective income tax rate of 0% for both periods.

The Company is subject to taxation in various jurisdictions within the U.S. The Company continues to remain subject to examination by U.S. federal authorities for the years 2016 through ~~2018.~~2019. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. No accrual for interest and penalties was considered necessary as of ~~June 25,~~December 31, 2019.

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Note ~~11.~~

14.

Non-controlling Interests

Non-controlling interests are presented as a separate item in the stockholders’ equity section of the condensed consolidated balance sheet. The amount of consolidated net income or loss attributable to non-controlling interests is presented on the face of the condensed consolidated statement of operations. Changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions, while changes in ownership interest that do result in deconsolidation of a subsidiary require gain or loss recognition based on the fair value on the deconsolidation date.

The equity interests of the unrelated limited partners and members are shown on the accompanying consolidated balance sheet in the stockholders’ equity section as a non-controlling interest and is adjusted each period to reflect the limited partners’ and members’ share of the net income or loss as well as any cash contributions or distributions to or from the limited partners and members for the period. The limited partners’ and members’ share of the net income or loss in the subsidiary is shown as non-controlling interest income or expense in the accompanying consolidated statement of operations. All inter-company accounts and transactions are eliminated.

On February 6, 2019, the Company concurrently entered into and closed on a Membership Interest Purchase Agreement with RGWP, LLC (the “RGWP Repurchase”), pursuant to which the Company agreed to acquire all of the remaining membership interests of three entities to which the Company is already a party to and already owned a controlling interest: Bad Daddy’s Burger Bar of Seaboard LLC, Bad Daddy’s Burger Bar of Cary, LLC, and BDBB of Olive Park NC, LLC. The purchase price was approximately $3.0 million. These entities own and operate three Bad Daddy’s Burger Bar restaurants in the greater Raleigh, NC market. The purchase agreement contains various representations, warranties, and covenants of the Seller that are customary in transactions of this nature.

~~The RGWP Repurchase resulted in a $788,000 reduction in non-controlling interests, an increase to non-compete agreements of $50,000 and a $2,171,000 reduction in additional paid in capital.~~

The following table summarizes the activity in non-controlling interests during the quarter ended ~~June 25, 2019:~~December 31, 2019 (in thousands):

Bad Daddy’s Good Times Total
Balance at September 25, 2018 $ 2,861 $ 377 $ 3,238
Income attributable to non-controlling interests 671 241 912
Net distributions to unrelated limited partners (953 ) (280 ) (1,233 )
Purchase of non-controlling interest (788 ) - (788 )
Balance at June 25, 2019 $ 1,791 $ 338 $ 2,129

	Bad Daddy’s			Good Times			Total
Balance at September 24, 2019	$	1,190		$	332		$	1,522
Income		133			79			212
Contributions		22			-			22
Distributions		(186	)		(105	)		(291	)
Balance at December 31, 2019	$	1,159		$	306		$	1,465

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

~~Note 12.~~

~~Recent Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~~~“Revenue from Contracts with Customers (Topic 606).”~~ This update was issued to replace the current revenue recognition guidance, creating a more comprehensive five-step model. In March 2016, the FASB issued No. ASU 2016-04, “Liabilities – Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products.” This pronouncement provides guidance for the derecognition of prepaid stored-value product liabilities, consistent with the breakage guidance in Topic 606. These amendments are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We adopted these ASUs effective as of September 26, 2018. The adoption of these new standards did not have a material impact to our revenue recognition related to Company-owned restaurant sales, recognition of royalty fees from our franchise agreement, or impact from recognition of gift card breakage. As discussed in Note 2 and further described below, the adoption of this standard did have an impact on the presentation of advertising fund contributions from our franchises. Prior to the adoption of these new standards, we accounted for advertising expenses net of advertising contributions from our franchisees. Subsequently, as described in Notes 1 and 2, we now account for franchisee advertising contributions as a component of franchise revenue. Because advertising expenses are incurred within the respective year in which contributions are recorded, there was no change to the consolidated balance sheet, however for the first three fiscal quarters of 2018 franchise revenues and advertising costs are each $263,000 greater than originally presented, and for the first three fiscal quarters of 2019 franchise revenues and advertising costs are each $240,000 greater than would have been reflected under the former presentation.

~~In February 2016, the FASB issued ASU No. 2016-02,~~~~“Leases (Topic 842)”~~, (ASU 2016-02), which replaces the existing guidance in Accounting Standard Codification 840, Leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. This pronouncement requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. Subsequently FASB has issued several other Accounting Standards Updates, including ASU 2018-11 and ASU 2018-12, which among other things provide for a practical expedient related to the recognition of the cumulative effective on retained earnings resulting from the adoption of the pronouncements. We expect to adopt these ASU’s effective September 25, 2019 and expect that the adoption of these standards will result in a significant increase in our long-term assets and liabilities given we have a significant number of leases.

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~~In January 2017, the FASB issued ASU No. 2017-04,~~~~“Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment,”~~ which eliminates Step 2 from the impairment test applied to goodwill. Under the new standard, goodwill impairment tests will compare the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. This pronouncement is effective for annual and interim periods beginning after December 15, 2019 and should be applied on a prospective basis. We adopted this ASU effective as of the quarter-end March 26, 2019. The adoption of the new standard did not have a material impact on our financial position or results from operations.

~~Note 13.~~

~~Subsequent Events~~

~~None.~~

Note ~~14.~~

15.

Segment Reporting

All of our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service upscale casual dining industry while our Good Times Burgers and Frozen Custard restaurants (Good Times) compete in the quick-service ~~industry segment while our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service industry segment.~~drive-through dining industry. We believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results. Income (loss) from operations represents revenues less restaurant operating costs and expenses, directly allocable general and administrative expenses, and other restaurant-level expenses directly associated with each brand including depreciation and amortization, pre-opening costs and losses or gains on disposal of property and equipment. Unallocated corporate capital expenditures are presented below as reconciling items to the amounts presented in the consolidated financial statements.

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

	Quarter Ended						Year-to-Date						Quarter Ended
	June 25, 2019			June 26, 2018			June 25, 2019			June 26, 2018			December 31, 2019			December 25, 2018
Revenues
Bad Daddy’s	$	21,181		$	17,862		$	59,996		$	48,985		$	22,902		$	18,341
Good Times		8,276			8,401			22,003			23,722			7,912			7,024
	$	29,457		$	26,263		$	81,999		$	72,707		$	30,814		$	25,365
Income (loss) from operations
Bad Daddy’s	$	494		$	430		$	300		$	438		$	(485	)	$	(568	)
Good Times		650			423			505			265			164			74
Corporate		(68	)		(72	)		(292	)		(290	)		(51	)		(87	)
	$	1,076		$	781		$	513		$	413		$	(372	)	$	(581	)
Capital expenditures
Payments for the purchase of property and equipment
Bad Daddy’s	$	609		$	2,270		$	3,727		$	6,259		$	1,577		$	2,486
Good Times		301			113			930			290			15			388
Corporate		13			8			59			11			21			44
	$	923		$	2,391		$	4,716		$	6,560		$	1,613		$	2,918

	June 25, 2019		September 25, 2018		December 31, 2019		September 24, 2019
Property and equipment, net
Bad Daddy’s	$	30,829	$	29,642	$	30,560	$	30,479
Good Times		5,594		5,234		4,741		4,890
Corporate		243		369		281		308
	$	36,666	$	35,245	$	35,582	$	35,677

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and the disclosure of risk factors in the Company’s form 10-K for the fiscal year ended September ~~25, 2018.~~24, 2019. Also, documents subsequently filed by us with the SEC and incorporated herein by reference may contain forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following:

(I)

We compete with numerous well-established competitors who have substantially greater financial resources and longer operating histories than we do. Competitors have increasingly offered selected food items and combination meals, including hamburgers, at discounted prices, and continued discounting by competitors may adversely affect revenues and profitability of Company restaurants.

(II)

We may be negatively impacted if we experience same store sales declines. Same store sales comparisons will be dependent, among other things, on the success of our advertising and promotion of new and existing menu items. No assurances can be given that such advertising and promotions will in fact be successful.

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We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers' compensation or energy; inadequate number of hourly paid employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September ~~25, 2018.~~24, 2019.

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Overview.

Good Times Restaurant Inc., through its subsidiaries (collectively, the “Company” or “we”, “us” or “our”) operates and franchises/licenses full-service hamburger-oriented restaurants under the name Bad Daddy’s Burger Bar (Bad Daddy’s) and operates and franchises hamburger-oriented drive-through restaurants under the name Good Times Burgers & Frozen Custard (Good Times).

We are focused on ~~developing~~targeted unit growth of the Bad Daddy’s concept ~~with company-owned restaurants in major markets of~~while at the ~~U.S., while continuing to improve~~same time growing same store sales and improving the profitability of ~~Good Times, redeploying profits generated from Good Times into~~both the Bad Daddy’s ~~concept.~~and the Good Times concepts.

Growth Strategies and Outlook.

We believe there are significant opportunities to develop new units, grow customer traffic and increase awareness of our brands. The following sets ~~for the~~forth key elements of our growth strategy:

~~Pursue disciplined unit growth of company-operated Bad Daddy’s restaurants~~Relentlessly pursue same stores sales at both concepts

~~Generate consistently positive same-store sales in both brands by delivering food~~Improve operational efficiencies and ~~service that are differentiated in each of their respective competitive segments~~expense management

~~Optimize the value captured from our Good Times restaurants to reinvest in~~Pursue disciplined and targeted growth of Bad Daddy’s ~~development~~Burger Bar restaurants

Restaurant locations.

As of ~~June 25,~~December 31, 2019, we operated, franchised or licensed a total of ~~thirty-five~~thirty-nine Bad Daddy’s restaurants and ~~thirty-four~~thirty-three Good Times restaurants. The following table presents the number of restaurants operating at the end of the first ~~three~~ fiscal quarters of ~~2019~~2020 and ~~2018.~~2019.

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

State Good Times Burgers
& Frozen Custard Bad Daddy's
Burger Bar Total
2019 2018 2019 2018 2019 2018
Colorado 26 26 12 12 38 38
Georgia 0 0 4 2 4 2
Oklahoma 0 0 1 1 1 1
North Carolina 0 0 14 11 14 11
South Carolina 0 0 1 0 1 0
Tennessee 0 0 1 1 1 1
Total: 26 26 33 27 59 53

	Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total
	2020		2019		2020		2019		2020		2019
Alabama		1		-		-		-		1		-
Colorado		12		12		25		26		37		38
Georgia		4		4		-		-		4		4
North Carolina		14		13		-		-		14		13
Oklahoma		1		1		-		-		1		1
South Carolina		3		1		-		-		3		1
Tennessee		2		1		-		-		2		1
Total		37		32		25		26		62		58

Franchise/~~License:~~License

State	Good Times Burgers & Frozen Custard				Bad Daddy's Burger Bar				Total
													Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total
	2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019
Colorado		6		8		0		0		6		8		-		-		6		7		6		7
North Carolina		0		0		1		1		1		1		1		1		-		-		1		1
South Carolina		0		0		1		1		1		1		1		1		-		-		1		1
Wyoming		2		2		0		0		2		2		-		-		2		2		2		2
Total:		8		10		2		2		10		12
Total														2		2		8		9		10		11

Results of Operations

~~Fiscal~~The following presents certain historical financial information of our operations. This financial information includes results for our quarter ended ~~June~~December 31, 2019 and December 25, ~~2019 compared to fiscal quarter ended June 26, 2018:~~2018.

Net Revenues.Net revenues for the quarter ended ~~June 25,~~December 31, 2019 increased ~~$3,194,000~~$5,449,000 or ~~12.2%~~21.5% to ~~$29,457,000~~$30,814,000 from ~~$26,263,000~~$25,365,000 for the quarter ended ~~June 26,~~December 25, 2018. Bad Daddy’s concept revenues increased ~~$3,319,000~~$4,561,000 while our Good Times concept revenues ~~decreased $125,000.~~increased $888,000.

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Bad Daddy’s restaurant sales increased ~~$3,315,000~~$4,563,000 to ~~$21,080,000~~$22,813,000 for the quarter ended ~~June 25,~~December 31, 2019 from ~~$17,765,000~~$18,250,000 for the quarter ended ~~June 26,~~December 25, 2018, primarily attributable to the ~~six~~four new restaurants opened ~~subsequent~~in fiscal 2019 and two new restaurants opened in the quarter ended December 31, 2019, and the impact of the 53^rd week of the fiscal year. We estimate the impact of the extra week of sales to ~~the third fiscal quarter of 2018.~~be approximately $2,015,000. Bad Daddy’s same store restaurant sales decreased ~~0.7%~~3.4% during the quarter ended ~~June 25,~~December 31, 2019 compared to the same prior-year quarter. Bad Daddy’s restaurants are included in same store sales after they have been open a full eighteen months. ~~Comparable sales are calculated excluding weeks during which restaurants are closed for major remodels.~~ The average menu price increase for the quarter ended ~~June 25,~~December 31, 2019 over the same prior-year quarter was approximately ~~1.4%~~2.5%. There were ~~twenty-four~~twenty-five restaurants included in the same store sales base at the end of the quarter. Additionally, net revenues ~~increased~~were reduced by ~~$4,000 due to higher~~$2,000 in lower franchise ~~revenues~~royalties and license fees compared to the ~~same~~ prior-year quarter. ~~The~~Franchise revenues in the current and prior year quarters each include ~~franchise~~franchisee advertising contributions of $4,000.

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Good Times restaurant sales ~~decreased $125,000~~increased $883,000 to ~~$8,100,000~~$7,780,000 for the quarter ended ~~June 25,~~December 31, 2019 from ~~$8,225,000~~$6,897,000 for the quarter ended ~~June 26,~~December 25, 2018. Good Times same store restaurant sales increased ~~2.8%~~5.8% during the quarter ended ~~June 25,~~December 31, 2019 compared to the same prior-year quarter. To align Good Times’ same store sales calculations with same store sales calculations for Bad Daddy’s, beginning in fiscal 2018 Good Times restaurants are included in the same store sales calculation after they have been open a full eighteen months. The same store sales increase was offset by a decrease in restaurant sales of $344,000 due to one restaurant that closed in April of 2018quarter and ~~one that was closed for most of the current fiscal quarter for a remodel. The~~benefitted from an extra operating week which we estimate contributed approximately $460,000.The average menu price increase for the quarter ended ~~June 25,~~December 31, 2019 over the same prior-year quarter was approximately ~~3.9%~~5.7%. ~~Total franchise~~Franchise revenues ~~were unchanged~~increased $5,000 for the quarter ended ~~June 25,~~December 31, 2019, ~~at $176,000,~~ compared to the same prior year ~~quarter. The~~period. Franchise revenues for the current and prior year quarters include ~~franchise~~franchisee advertising contributions of ~~$93,000~~$55,000 and ~~$84,000,~~$63,000, respectively.

Restaurant Operating Costs

Food and Packaging Costs. Food and packaging costs for the quarter ended ~~June 25,~~December 31, 2019 increased ~~$696,000~~$1,509,000 to ~~$8,529,000 (29.2%~~$9,032,000 (29.5% of restaurant sales) from ~~$7,833,000 (30.1%~~$7,523,000 (29.9% of restaurant sales) for the quarter ended ~~June 26,~~December 25, 2018.

Bad Daddy’s food and packaging costs were ~~$6,063,000 (28.8%~~$6,618,000 (29.0% of restaurant sales) for the quarter ended ~~June 25,~~December 31, 2019, up from ~~$5,179,000 (29.2%~~$5,269,000 (28.9% of restaurant sales) for the quarter ended ~~June 26,~~December 25, 2018. This increase is primarily due to a greater number of operating restaurants during the current quarter versus the same quarter in the prior year. The ~~decline~~increase as a percent of sales is ~~primarily~~ due to ~~a combination~~purchase price increases in all of ~~higher~~our primary proteins, mostly offset by year-over-year increases in menu ~~prices, combined with lower costs of proteins, primarily beef.~~prices.

Good Times food and packaging costs were ~~$2,466,000 (30.4%~~$2,414,000 (31.0% of restaurant sales) for the quarter ended ~~June 25,~~December 31, 2019, ~~down~~up from ~~$2,654,000 (32.3%~~$2,254,000 (32.7% of restaurant sales) for the quarter ended ~~June 26,~~December 25, 2018. ~~The~~This decrease as a percent of sales is due primarily to ~~increased~~the impact of higher menu ~~prices, coupled with reduced beef prices,~~pricing and ~~targeted product changes.~~menu engineering, which offset purchase price increases on our primary ingredients.

Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the quarter ended ~~June 25,~~December 31, 2019 increased ~~$1,522,000~~$2,266,000 to ~~$10,677,000 (36.6%~~$11,819,000 (38.6% of restaurant sales) from ~~$9,155,000 (35.2%~~$9,553,000 (38.0% of restaurant sales) for the quarter ended ~~June 26,~~December 25, 2018.

Bad Daddy’s payroll and other employee benefit costs were ~~$7,851,000 (37.2%~~$8,841,000 (38.8% of restaurant sales) for the quarter ended ~~June 25,~~December 31, 2019 up from ~~$6,439,000 (36.2%~~$6,982,000 (38.3% of restaurant sales) in the same prior year period. The ~~$1,412,000~~$1,859,000 increase was primarily attributable to the ~~eight~~four new restaurants opened in ~~the last three quarters of~~ fiscal ~~2018~~2019 and two new restaurants opened in the ~~first three quarters of fiscal~~quarter ended December 31, 2019. As a percent of sales, payroll and employee benefits costs increased by ~~1.0%~~0.5%, ~~the result of~~as increased wages, particularly for ~~back of house staff~~kitchen workers, increased in all states due to a competitive market for workers, and due to statutory wage increases for front-of-house employees in Colorado, all of which ~~in total~~combined exceeded the impact of our year-over-year menu price increases.

Good Times payroll and other employee benefit costs were ~~$2,826,000 (34.9%~~$2,978,000 (38.3% of restaurant sales) in the quarter ended ~~June 25,~~December 31, 2019, up from ~~$2,716,000 (33.0%~~$2,571,000 (37.3% of restaurant sales) in the same ~~prior year~~prior-year period. ~~Payroll and other employee benefit costs increased $187,000 for the restaurants that were open in both quarters in 2018 and 2019.~~ The $407,000 increase was ~~due~~partially attributable to ~~higher average weekly~~the increase in same store sales ~~and a higher~~as well as an increase to the average wage paid to our employees. ~~The~~As a percent of sales, payroll and employee benefits costs increased by 1.0%, primarily related to the average wage paid to our employees, which increased approximately ~~10.8%~~9.5% in the quarter ended ~~June 25,~~December 31, 2019 compared to the same prior year ~~period~~period. This average wage increase is attributable to a very competitive labor market in Colorado and statutory increases in the minimum wage rate. The increase was offset by a decrease in payroll and other employee benefit costs of $77,000 from the same prior-year quarter due to one store that closed in April of 2018 and one store that was closed for most of the current fiscal quarter for a remodel.

Occupancy Costs. Occupancy costs for the quarter ended ~~June 25,~~December 31, 2019 increased ~~$241,000~~$473,000 to ~~$2,091,000 (7.2%~~$2,438,000 (8.0% of restaurant sales) from ~~$1,850,000~~$1,965,000 (7.8% of restaurant sales) for the quarter ended December 25, 2018.

Bad Daddy’s occupancy costs were $1,644,000 (7.2% of restaurant sales) for the quarter ended ~~June 26, 2018.~~

~~Bad Daddy’s occupancy costs were $1,391,000 (6.6% of restaurant sales) for the quarter ended June 25,~~December 31, 2019 up from ~~$1,156,000 (6.5%~~$1,277,000 (7.0% of restaurant sales) in the same prior year period. The ~~$235,000~~$367,000 increase was primarily attributable to the ~~six~~four new restaurants opened ~~subsequent~~in fiscal 2019 and two new restaurants opened in the quarter ended December 31, 2019. The increase as a percentage of sales was due to ~~the end of the third quarter of 2018.~~general increases in our operating lease costs.

Good Times occupancy costs were ~~$700,000 (8.6%~~$794,000 (10.2% of restaurant sales) in the quarter ended ~~June 25,~~December 31, 2019, up from ~~$694,000 (8.4%~~$688,000 (10.0% of restaurant sales) in the same prior year period. The ~~$6,000~~$106,000 increase was primarily attributable to an $84,000 increase in ~~property taxes and common area costs compared to the same prior year period.~~our operating lease costs.

Other Operating Costs. Other operating costs for the quarter ended ~~June 25,~~December 31, 2019, increased ~~$616,000~~$606,000 to ~~$2,989,000 (10.2%~~$3,276,000 (10.7% of restaurant sales) from ~~$2,373,000 (9.1%~~$2,670,000 (10.6% of restaurant sales) for the quarter ended ~~June 26,~~December 25, 2018.

Bad Daddy’s other operating costs were ~~$2,339,000 (11.1%~~$2,565,000 (11.2% of restaurant sales) for the quarter ended ~~June 25,~~December 31, 2019 up from ~~$1,725,000 (9.7%~~$2,041,000 (11.2% of restaurant sales) in the same prior year period. The ~~$614,000~~$524,000 increase was primarily attributable to the ~~eight~~four new restaurants opened in ~~the last two quarters of~~ fiscal ~~2018~~2019 and two new restaurants opened in the ~~first two quarters of fiscal~~quarter ended December 31, 2019. The percentage increase was primarily attributable to ~~higher costs of general restaurant supplies and~~ approximately ~~$183,000~~$131,000 of increased commissions paid to delivery service providers in the current ~~quarter which were not incurred in~~year compared to the prior year, ~~quarter.~~offset by decreases in other general restaurant supplies and expenses.

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Good Times other operating costs were ~~$650,000 (8.0%~~$711,000 (9.1% of restaurant sales) in the quarter ended ~~June 25,~~December 31, 2019, up from ~~$648,000 (7.9%~~$629,000 (9.1% of restaurant sales) in the same prior year period. The ~~percentage~~ increase was primarily attributable to ~~higher costs of general restaurant supplies and approximately $25,000 of~~an approximate $40,000 increase in commissions paid to delivery service providers ~~in the current quarter which were not incurred in the prior year quarter. The increase in commissions in the current quarter was~~ offset by ~~a $19,000 decrease~~decreases in ~~costs due to one~~other general restaurant ~~that closed in April 2018~~supplies and ~~one that was closed for most of the current fiscal quarter for a remodel.~~expenses.

New Store Preopening Costs. In the quarter ended ~~June 25,~~December 31, 2019, we incurred ~~$129,000~~$802,000 of preopening costs compared to ~~$610,000~~$627,000 for the quarter ended ~~June 26,~~December 25, 2018. All of the preopening costs are related to our Bad Daddy’s restaurants.

Preopening costs in the current quarter are primarily attributable to four restaurants: two that opened late during the fourth quarter of fiscal 2019, and two restaurants that ~~will open in August and September of 2019.~~opened during the current quarter. In the prior-year period, pre-opening costs are related to the one Bad Daddy’s restaurant opened during the ~~second~~first fiscal quarter of ~~2018 and four~~2019, one that opened during the ~~third and fourth quarters~~second quarter of fiscal ~~2018.~~

2019 and two that opened during the fourth quarter of fiscal 2019. Preopening costs typically occur over a period of approximately five ~~months, although~~months. Although the exact timing varies by ~~location. We~~location, we typically spend approximately $275,000 to $350,000 per location.

Depreciation and Amortization Costs. Depreciation and amortization costs for the quarter ended ~~June 25,~~December 31, 2019, increased ~~$167,000 to $1,104,000~~$45,000 from ~~$937,000~~$1,034,000 in the quarter ended ~~June 26, 2018.~~December 25, 2018 to $1,079,000.

Bad Daddy’s depreciation ~~and amortization~~ costs ~~were $863,000 for~~increased $51,000 from $816,000 in the quarter ended ~~June~~December 25, ~~2019 up from $698,000~~2018 to $867,000 in the ~~same prior year period.~~quarter ended December 31, 2019. This increase was ~~mainly~~primarily attributable to the ~~six~~four new restaurants opened ~~subsequent to~~in fiscal 2019 and two new restaurants opened in the ~~third~~quarter ended December 31, 2019, partially offset by the reduced depreciation resulting from asset impairment charges recorded in the fourth quarter of fiscal ~~2018.~~2019. There were five more Bad Daddy’s restaurants open at the end of the current fiscal quarter compared to the prior year fiscal quarter.

Good Times depreciation ~~and amortization~~ costs ~~were $241,000 for~~decreased $6,000 from $218,000 in the quarter ended ~~June~~December 25, ~~2019 up from $239,000~~2018 to $212,000 in the ~~same prior year period.~~quarter ended December 31, 2019.

General and Administrative Costs. General and administrative costs for the quarter ended ~~June 25,~~December 31, 2019, increased ~~$75,000~~$239,000 to ~~$2,144,000 (7.3%~~$2,213,000 (7.2% of total revenue) from ~~$2,069,000~~$$1,974,000 (7.8%) of total revenues) for the quarter ended ~~June 26,~~December 25, 2018.

The ~~$75,000~~$239,000 increase in general and administrative expenses in the quarter ended ~~June 25,~~December 31, 2019 is primarily attributable to:

Increase in ~~salaries, wages,~~training and ~~employee benefit costs associated with manager training of $30,000~~

~~Decrease in shared services salaries, wages, and employee benefit~~recruiting costs of ~~$9,000~~$55,000

Increase in ~~stock compensation expense~~expected employee medical claims costs of ~~$21,000~~$50,000

Increase in costs associated with district management of ~~$75,000,~~$72,000, of which approximately $20,000 is related to the extra operating week in the current quarter and the remainder is primarily related to additional district management for our east coast Bad Daddy’s markets, ~~partially offset by reductions in the Colorado market costs for both Bad Daddy’s and Good Times~~

Increase in ~~training and recruiting costs~~professional fees of ~~$15,000~~$139,000

Decrease of $37,000 in ~~professional fees, director’s fees and financial relations of $121,000 primarily attributable to~~incentive stock compensation costs in the prior year quarter for legal expenses related to the Company’s response to SEC filings by shareholders affiliated with two former directors, payments to departing directors pursuant to a settlement agreement with shareholders affiliated with two directors, and professional services associated with a one-time option exchange and the establishment of a new equity compensation plan to replace the former plan which had expired

~~Increase in preliminary site costs of $26,000~~

Net ~~increases~~decreases in all other expenses of ~~$38,000~~$40,000

WeFor the balance of the fiscal year, we expect ~~total~~ general and administrative costs ~~will increase in support of additional Bad Daddy’s restaurants, particularly related~~ to ~~district management~~continue to be stable or decline slightly from fiscal 2019 to fiscal 2020 as we focus on reducing turnover and ~~manager~~associated training ~~expenses, however we anticipate such costs will decrease as a percentage of revenue.~~costs.

Advertising Costs. Advertising costs for the quarter ended ~~June 25,~~December 31, 2019, ~~increased $13,000~~decreased $77,000 to ~~$666,000 (2.3%~~$546,000 (1.8% of total revenue) from ~~$653,000~~$623,000 (2.5% of total revenue) for the quarter ended ~~June 26,~~December 25, 2018. ~~The decline as a percentage of revenues is primarily due to the growth of the Bad Daddy’s segment, which has lower advertising costs as a percentage of revenue compared to the Good Times segment.~~

Bad Daddy’s advertising costs were ~~$212,000~~$235,000 (1.0% of total revenue) in the quarter ended ~~June 25,~~December 31, 2019 compared to ~~$197,000 (1.1%~~$251,000 (1.4% of total revenue) in the same prior year period. The ~~$15,000 increase~~$16,000 decrease was primarily attributable to rolling over a media buy in the ~~six~~prior year quarter ending December 25, 2018 in the Colorado market that was incurred by those restaurants, partially offset by an increase in advertising fund contributions related to the four new restaurants opened ~~subsequent to~~in fiscal 2019 and two new restaurants opened in the ~~end of the third~~ quarter ~~of 2018, partially offset by a reduction in local store marketing.~~ended December 31, 2019. The current and prior year quarters include advertising costs of $4,000 ~~of costs associated with franchise advertising contributions.~~

Good Times advertising costs were $454,000 (5.5% of total revenue) in the quarter ended June 25, 2019 compared to $456,000 (5.6% of total revenue) in the same prior year period. This $2,000 decline is due primarily to reduced contributions to the advertising fund due to the restaurant that closed in April 2018 and the restaurant that was closed for most of the current quarter for a remodel. The current and prior year quarters include advertising costs of $93,000 and $84,000, respectively, of costs associated with franchise advertising contributions.

Bad Daddy’s advertising costs consist primarily of contributions made to the advertising materials fund based on a percentage of restaurant sales as well as local store marketing efforts.

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 5.5% of total revenue for the Good Times segment.

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~~Franchise Costs.~~ ~~Franchise costs~~ were ~~$8,000 and $11,000 for the quarters ended June 25, 2019 and June 26, 2018, respectively. The costs are primarily related to the Good Times franchised restaurants.~~

~~Loss (gain) on Restaurant Asset Disposals.~~ The loss on restaurant asset disposals for the quarter ended June 25, 2019 was $44,000 compared to a gain of $9,000 for the quarter ended June 26, 2018. The loss in the current quarter is primarily associated with the write down of assets no longer in use, offset by deferred gains on previous sale lease-back transactions on two Good Times restaurants. The gain in the prior period is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants.

~~Income from Operations~~. ~~Income from operations was $1,076,000 in the quarter ended June 25, 2019 compared to income from operations of $781,000 in the quarter ended June 26, 2018.~~

The change in income from operations for the quarter was due primarily to matters discussed in the "Net Revenues”, "Restaurant Operating Costs", “Asset Impairment Costs” and "General and Administrative Costs" sections above.

~~Net Income~~. ~~Net income was $873,000 for the quarter ended June 25, 2019 compared to net income of $685,000 in the quarter ended June 26, 2018.~~

The change in net income for the quarter was primarily attributable to the matters discussed in the "Net Revenues", "Restaurant Operating Costs", “Asset Impairment Costs” and "General and Administrative Costs", as well as an increase in net interest expense of $106,000 for the current quarter, compared to the same prior year period.

~~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 25, 2019, the income attributable to non-controlling interests was $333,000 compared to $381,000 for the quarter ended June 26, 2018.~~

Current quarter income of $186,000 is attributable to non-controlling partners in the BDI joint-venture restaurants, compared to $238,000 in the same prior year period. This decrease is due to the elimination of non-controlling interest beginning in the second fiscal quarter associated with the repurchase of interests in the three Raleigh area restaurants offset by an increase in joint venture store operating weeks due to two new joint venture restaurants opened during the final quarter of fiscal 2018. Current quarter income of $147,000 is attributable to non-controlling partners in the Good Times joint-venture restaurants, compared to $143,000 in the same prior year period.

~~Fiscal three quarters ended June 25, 2019 compared to fiscal three quarters ended June 26, 2018:~~

~~Net Revenues.~~Net revenues for the three quarters ended June 25, 2019 increased $9,292,000 or 12.8% to $81,999,000 from $72,707,000 for the quarter ended June 26, 2018. Bad Daddy’s concept revenues increased $11,011,000 while our Good Times concept revenues decreased $1,719,000.

Bad Daddy’s restaurant sales increased $11,008,000 to $59,714,000 for the three quarters ended June 25, 2019 from $48,706,000 for the three quarters ended June 26, 2018, primarily attributable to the nine new restaurants opened in fiscal 2018 and two new restaurant opened in the three quarters ended June 25, 2019. Bad Daddy’s same store restaurant sales increased 0.2% during the three quarters ended June 25, 2019 compared to the same prior-year period. Bad Daddy’s restaurants are included in same store sales after they have been open a full eighteen months. Comparable sales are calculated excluding weeks during which restaurants are closed for major remodels. The average menu price increase for the three quarters ended June 25, 2019 over the same prior-year period was approximately 2.2%. There were twenty-four restaurants included in the same store sales base at the end of the quarter. Franchise revenues increased $3,000 for the three quarters ended June 25, 2019 compared to the same prior-year period. The current and prior year periods include franchise advertising contributions of $11,000 and $12,000, respectively.

Good Times restaurant sales decreased $1,656,000 to $21,567,000 for the three quarters ended June 25, 2019 from $23,223,000 for the three quarters ended June 26, 2018. Good Times same store restaurant sales decreased 3.1% during the three quarters ended June 25, 2019 compared to the same prior-year period. Good Times sales were negatively affected in the first two fiscal quarters of 2019 by abnormally cold and wet weather in Colorado. To align Good Times’ same store sales calculations with same store sales calculations for Bad Daddy’s, beginning in fiscal 2018 Good Times restaurants are included in the same store sales calculation after they have been open a full eighteen months. Restaurant sales decreased $636,000 due to two restaurants that were closed in January and April of 2018, restaurant sales also decreased $287,000 due to one restaurant that was closed for most of the third fiscal quarter for a remodel. The average menu price increase for the three quarters ended June 25, 2019 over the same prior-year period was approximately 3.5%. Franchise revenues decreased $41,000 for the three quarters ended June 25, 2019, compared to the same prior year period, primarily due to one franchise location that closed in September 2018 and one location that was temporarily closed due to a fire that occurred in April 2018, the restaurant subsequently reopened in March 2019. The current and prior year quarters include franchise advertising contributions of $228,000 and $251,000, respectively.

~~Food and Packaging Costs.~~ Food and packaging costs for the three quarters ended June 25, 2019 increased $1,801,000 to $23,955,000 (29.5% of restaurant sales) from $22,154,000 (30.8% of restaurant sales) for the three quarters ended June 26, 2018. This increase is primarily due to a greater number of operating restaurants during the current period versus the same period in the prior year.

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Bad Daddy’s food and packaging costs were $17,136,000 (28.7% of restaurant sales) for the three quarters ended June 25, 2019, up from $14,539,000 (29.9% of restaurant sales) for the three quarters ended June 26, 2018. This increase is primarily due to a greater number of operating restaurants during the current period versus the same period in the prior year. The decline as a percent of sales is primarily due to a combination of higher menu prices, combined with lower costs of proteins, primarily beef.

Good Times food and packaging costs were $6,819,000 (31.6% of restaurant sales) for the three quarters ended June 25, 2019, down from $7,615,000 (32.8% of restaurant sales) for the three quarters ended June 26, 2018. In addition to the factors affecting the quarter ending June 25, 2019, current year food and packaging costs at Good Times were favorably affected by the increased discounting of kid’s meals that was in place during the first quarter of fiscal 2018.

~~Payroll and Other Employee Benefit Costs.~~ Payroll and other employee benefit costs for the three quarters ended June 25, 2019 increased $4,382,000 to $30,458,000 (37.5% of restaurant sales) from $26,076,000 (36.3% of restaurant sales) for the three quarters ended June 26, 2018.

Bad Daddy’s payroll and other employee benefit costs were $22,502,000 (37.7% of restaurant sales) for the three quarters ended June 25, 2019 up from $18,002,000 (37.0% of restaurant sales) in the same prior year period. The $4,500,000 increase was primarily attributable to the nine new restaurants opened during fiscal 2018 and two new restaurants opened during the three quarters ended June 25, 2019. As a percent of sales, payroll and employee benefits costs increased by 0.7%, the result of increased wages for back of house staff in all states due to a competitive market for workers and statutory wage increases for front-of-house employees in Colorado, which in total exceeded the impact of our year-over-year menu price increases.

Good Times payroll and other employee benefit costs were $7,956,000 (36.9% of restaurant sales) in the three quarters ended June 25, 2019, down from $8,074,000 (34.8% of restaurant sales) in the same prior year period. Payroll and other employee benefit costs decreased $335,000 from the same prior-year quarters due two stores that were closed in January and April of 2018 and one store that was closed for most of the third fiscal quarter for a remodel. The decrease was offset by an increase in payroll and other employee benefit costs of $217,000 primarily due to the average wage paid to our employees. The average wage increased approximately 10.5% in the three quarters ended June 25, 2019 compared to the same prior year period. This average wage increase is attributable to a very competitive labor market in Colorado and statutory increases in the minimum wage rate.

~~Occupancy Costs.~~ Occupancy costs for the three quarters ended June 25, 2019 increased $943,000 to $6,221,000 (7.7% of restaurant sales) from $5,278,000 (7.3% of restaurant sales) for the three quarters ended June 26, 2018.

Bad Daddy’s occupancy costs were $4,022,000 (6.7% of restaurant sales) for the three quarters ended June 25, 2019 up from $3,114,000 (6.4% of restaurant sales) in the same prior year period. The $908,000 increase was primarily attributable to the nine new restaurants opened in fiscal 2018 and two new restaurants opened in the three quarters ended June 25, 2019.

Good Times occupancy costs were $2,199,000 (10.2% of restaurant sales) in the three quarters ended June 25, 2019, up from $2,164,000 (9.3% of restaurant sales) in the same prior year period. The $35,000 increase was primarily attributable to an increase in property taxes and common area costs compared to the same prior year period, and the increase as a percentage of sales is due to the deleveraging impact of lower average unit volumes.

~~Other Operating Costs.~~ Other operating costs for the three quarters ended June 25, 2019, increased $1,775,000 to $8,401,000 (10.3% of restaurant sales) from $6,626,000 (9.2% of restaurant sales) for the three quarters ended June 26, 2018.

Bad Daddy’s other operating costs were $6,560,000 (11.0% of restaurant sales) for the three quarters ended June 25, 2019 up from $4,735,000 (9.7% of restaurant sales) in the same prior year period. The $1,825,000 increase was primarily attributable to the nine new restaurants opened in fiscal 2018 and two new restaurants opened in the three quarters ended June 25, 2019. The percentage increase was primarily attributable to higher costs of general restaurant supplies and approximately $484,000 of increased commissions paid to delivery service providers in the current year which were not incurred in the prior year.

Good Times other operating costs were $1,841,000 (8.5% of restaurant sales) in the three quarters ended June 25, 2019, down from $1,891,000 (8.2% of restaurant sales) in the same prior year period. The decrease was primarily attributable to the two restaurants that closed in 2018. The increase as a percentage of sales is due to the deleveraging impact of lower average unit volumes.

~~New Store Preopening Costs.~~ In the three quarters ended June 25, 2019, we incurred $949,000 of preopening costs compared to $1,683,000 for the three quarters ended June 26, 2018. All of the preopening costs are related to our Bad Daddy’s restaurants.

Preopening costs in the three quarters ended June 25, 2019 are primarily attributable to four restaurants that opened between the final fiscal quarter of 2018 and third fiscal quarter of 2019 as well as to two restaurants that will open later in fiscal 2019. In the prior-year period, pre-opening costs are related to the seven Bad Daddy’s restaurants opened between the first and fourth fiscal quarters of 2018.

~~Preopening costs typically occur over a period of approximately five months, although the exact timing varies by location. We typically spend approximately $275,000 to $350,000 per location.~~

~~Depreciation and Amortization Costs~~. ~~Depreciation and amortization costs for the three quarters ended June 25, 2019, increased $562,000 to $3,227,000 from $2,665,000 in the three quarters ended June 26, 2018.~~

Bad Daddy’s depreciation and amortization costs were $2,542,000 for the three quarters ended June 25, 2019 up from $1,973,000 in the same prior year period. This increase was mainly attributable to the nine new restaurants opened in fiscal 2018 and two new restaurants opened in the three quarters ended June 25, 2019.

~~Good Times depreciation and amortization costs were $685,000 for the three quarters ended June 25, 2019 down from $692,000 in the same prior year period.~~

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~~General and Administrative Costs.~~ General and administrative costs for the three quarters ended June 25, 2019, increased $514,000 to $6,398,000 (7.8% of total revenue) from $5,884,000 (8.1% of total revenues) for the three quarters ended June 26, 2018.

~~The $514,000 increase in general and administrative expenses in the three quarters ended June 25, 2019 is primarily attributable to:~~

~~Increase in salaries, wages, and employee benefit costs associated with manager training of $305,000~~

~~Decrease in shared services salaries, wages, and employee benefit costs of $106,000~~

Increase in costs associated with district management of $183,000, primarily related to additional district management for our east coast Bad Daddy’s markets, partially offset by a reduction in the Colorado market costs for our Good Times locations

~~Increase in training and recruiting costs of $85,000~~

Decrease in professional fees, director’s fees and financial relations of $111,000 primarily attributable to costs in the prior year quarter for legal expenses related to the Company’s response to SEC filings by shareholders affiliated with two former directors, payments to departing directors pursuant to a settlement agreement with shareholders affiliated with two directors, and professional services associated with a one-time option exchange and the establishment of a new equity compensation plan to replace the former plan which had expired

~~Increase in preliminary site costs of $37,000~~

~~Increase in dues and subscriptions of $39,000 primarily due to a commodity contract management tool~~

~~Net increases in all other expenses of $82,000~~

We expect total general and administrative costs will increase in support of additional Bad Daddy’s restaurants, particularly related to district management and manager training expenses, however we anticipate such costs will decrease as a percentage of revenue.

~~Advertising Costs.~~ Advertising costs for the three quarters ended June 25, 2019, decreased $9,000 to $1,841,000 (2.2% of total revenue) from $1,850,000 (2.5% of total revenue) for the three quarters ended June 26, 2018. The decline as a percentage of revenues is primarily due to the growth of the Bad Daddy’s segment, which has lower advertising costs as a percentage of revenue compared to the Good Times segment.

~~Bad Daddy’s advertising costs were $654,000 (1.1%~~$311,000 (3.9% of total revenue) in the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 compared to ~~$538,000 (1.1%~~$372,000 (5.3% of total revenue) in the same prior year period. ~~The $116,000 increase was~~This $61,000 decline is due primarily ~~attributable~~to reduced contributions made to the nine new restaurants opened during the final three quarters of fiscal 2018 and first two fiscal quarters of 2019, as well as a media buy during the first quarter of fiscal 2019 in Colorado that was not covered by the ad fund contributions.regional advertising cooperative. The current and prior year quarters include advertising costs of ~~$11,000~~$55,000 and ~~$12,000,~~$63,000, respectively, of costs associated with franchise advertising contributions.

Good Times advertising costs were $1,187,000 (5.4% of total revenue) in the three quarters ended June 25, 2019 compared to $1,312,000 (5.5% of total revenue) in the same prior year period. This $125,000 decline is due primarily to reduced contributions to the advertising fund due to the two restaurants that closed during fiscal 2018 and lower sales among existing company- and franchisee-owned restaurants. The current and prior year quarters include advertising costs of $228,000 and $251,000, respectively, of costs associated with franchise advertising contributions.

~~Bad Daddy’s advertising costs consist primarily of contributions made to the advertising materials fund based on a percentage of restaurant sales as well as local store marketing efforts.~~

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Good Times advertising costs consists primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales which are used to provide television and radio advertising, social media and on-site and point-of-purchase. The percentage contribution paid to the regional advertising cooperative was reduced at the start of the current fiscal year associated with a change in expected media mix. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues. As a percentage of total revenue, we expect advertising costs to remain relatively stable at approximately ~~5.5%~~3.9% of total revenue for the Good Times segment.

Franchise Costs. Franchise costs were ~~$31,000~~$0 and ~~$32,000~~$7,000 for the ~~three~~ quarters ended ~~June 25,~~December 31, 2019 and ~~June 26,~~December 25, 2018, respectively. The costs are primarily related to the Good Times franchised restaurants. We currently have minimal direct costs associated with maintaining our franchise systems as those employees overseeing franchisee relations primarily perform responsibilities associated with company operations

~~Asset impairment costs.~~There were no asset impairment costs for the three quarters ended June 25, 2019 and asset impairment costs were $72,000 for the three quarters ended June 26, 2018. The costs are related to a Good Times restaurant that was closed and subleased in April 2018, as described in Note 9 to the financial statements.

~~Loss (gain)~~Gain on Restaurant Asset Disposals. The ~~loss~~gain on restaurant asset disposals for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 was ~~$5,000~~$19,000 compared to a gain of ~~$26,000~~$30,000 in the ~~three quarters~~quarter ended ~~June 26,~~December 25, 2018. ~~The loss~~

$9,000 of ~~$5,000~~the gain in the current period is comprised of: 1) a $27,000 deferred gain related to previous sale lease-back transactions on two Good Times restaurants, 2) a gain of $21,000 related to insurance claim reimbursements where assets were destroyed, offset by 3) a $53,000 loss associated with the write down of assets no longer in use. The gain of $26,000 in theand prior ~~year period~~years is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The additional gain of $10,000 in the current year is related to the sale of miscellaneous restaurant equipment. The additional gain of $21,000 in the prior year is related to insurance claim reimbursements where assets were destroyed.

~~Income~~Loss from Operations. ~~Income~~The loss from operations was ~~$513,000~~$372,000 in the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 compared to ~~income from operations~~a loss of ~~$413,000~~$581,000 in the ~~three quarters~~quarter ended ~~June 26,~~December 25, 2018.

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The change in ~~income~~the loss from operations for the quarter ~~and year-to-date was~~ended December 31, 2019 is due primarily due to matters discussed in the "Net ~~Revenues”,~~Revenues,” "Restaurant Operating ~~Costs", “Asset Impairment Costs” and~~Costs," "General and Administrative ~~Costs"~~Costs," and “Advertising Costs” sections above.

Net ~~Income (loss)~~Loss. The net loss was ~~$49,000~~$599,000 for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 compared to a net ~~income~~loss of ~~$143,000~~$742,000 in the ~~three quarters~~quarter ended ~~June 26,~~December 25, 2018.

The change ~~in net income (loss) for~~from the ~~three quarters~~quarter ended December 31, 2019 to the quarter ended December 25, 2018 was primarily attributable to the matters discussed in the "Net ~~Revenues",~~Revenues," "Restaurant Operating ~~Costs", “Asset Impairment Costs” and~~Costs," "General and Administrative ~~Costs",~~Costs," and “Advertising Costs” sections above as well as an increase in net interest expense ~~$291,000~~of $67,000 for the ~~three quarters~~quarter ended ~~June 26, 2018,~~December 31, 2019 compared to the same prior year period.

Income Attributable to Non-Controlling Interests.The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s ~~joint venture~~joint-venture restaurants.

For the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019, the income attributable to non-controlling interests was ~~$912,000~~$212,000 compared to ~~$853,000~~$309,000 for the ~~three quarters~~quarter ended ~~June 26,~~December 25, 2018.

~~Income for~~$133,000 of the current ~~three quarters of $671,000~~quarter’s income is attributable to ~~non-controlling partners in~~ the BDI joint-venture restaurants, compared to ~~$556,000~~$250,000 in the same prior year period. This ~~$115,000 increase~~$117,000 decrease is primarily due to ~~an increase in joint venture store operating weeks due to two new joint venture restaurants opened during the final quarter of fiscal 2018, offset by~~ the elimination of non-controlling ~~interest~~interests beginning in the second fiscal quarter of 2019 associated with the repurchase of interests ~~associated with~~in the three Raleigh area restaurants. ~~Income for~~$79,000 of the current ~~three quarters of $241,000~~quarter’s income is attributable to ~~the non-controlling partners in~~ the Good Times joint-venture restaurants, compared to ~~$297,000~~$59,000 in the same prior year period. ~~This decline is due to the reduction in profitability of the seven co-developed Good Times restaurants.~~

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.

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Our management does not consider EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of EBITDA and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are:

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing performance for a particular period;

Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplemental measure. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

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The following table reconciles net loss to EBITDA and Adjusted EBITDA(in thousands) for the fiscal ~~second quarter and year-to-date periods:~~third quarters:

	Quarter Ended						Year-to-Date						Quarter Ended
	June 25, 2019			June 26, 2018			June 25, 2019			June 26, 2018			December 31, 2019			December 25, 2018
Adjusted EBITDA:
Net income (loss), as reported	$	540		$	304		$	(961	)	$	(710	)
Depreciation and amortization		1,096	��		897			3,157			2,550
Net loss, as reported													$	(811	)	$	(1,051	)
Depreciation and amortization¹														1,069			993
Interest expense, net		202			97			561			272			227			160
EBITDA		1,838			1,298			2,757			2,112			485			102
Preopening expense		128			565			928			1,541			801			605
Non-cash stock-based compensation		110			88			331			303			75			112
GAAP rent-cash rent difference		(44	)		(35	)		(50	)		(51	)
Gain on disposal of assets		44			(9	)		5			(26	)
Asset impairment charge		-			-			-			72
Non-recurring severance cost														41			-
GAAP rent-cash cash difference														121			(43	)
Non-cash gain on disposal of asset														(9	)		(9	)
Adjusted EBITDA	$	2,076		$	1,907		$	3,971		$	3,951		$	1,514		$	767

Liquidity and Capital Resources

Cash and Working Capital

As of ~~June 25,~~December 31, 2019, we had a working capital deficit of ~~$3,241,000.~~$7,753,000. 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, and we typically have two to four weeks to pay our vendors. The working capital deficit may increase when new Bad Daddy’s and Good Times restaurants are opened. We believe that with our ability to access the Cadence Bank credit facility in addition to cash flow generated from our existing restaurants, that we will have sufficient capital to meet our working capital, long term debt obligations and recurring capital expenditure needs in fiscal ~~2019.~~2020. As of ~~June 25,~~December 31, 2019, we had ~~$1,487,000 of~~no commitments outstanding related to construction contracts for ~~four~~ Bad Daddy’s restaurants currently under development.

Consistent with many other restaurant and retail store operations, we typically use operating lease arrangements for our restaurants. We believe that our operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. Effective September 25, 2019, the first day of fiscal year 2020, our existing lease obligations are reflected in our consolidated balance sheets as operating lease assets and lease liabilities in accordance with Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)". See Note 2, Updates to Significant Accounting Policies and Note 11, Leases, in the notes to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for more information.

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Financing

The Company maintains a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $17,000,000 with a maturity date of December 31, 2021 (the “Cadence Credit Facility”). On February 21, 2019 the Cadence Credit Facility was amended, in connection with the RGWP Repurchase (see Note 8 to the financial statements), to retroactively attribute EBITDA previously attributed to non-controlling interests to the Company for purposes of certain financial covenants. On December 9, 2019 the Cadence Credit Facility was amended in connection with the separation of the Company’s former CEO, to amend the definition of “Consolidated EBITDA” for the purposes of financial covenants, to require certain installment payments, and to permit the company to make “Restricted Payments” (as defined in the Cadence Credit Facility). In the form of repurchases or redemptions of certain equity interests of the Company from former directors and officers of the Company in an aggregate amount not to exceed $100,000. As amended by the various amendments, the Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. All borrowings under the Cadence Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate, which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence bank publicly-announced prime rate, and (c) LIBOR plus 1.0%, or (ii) LIBOR, with a 0.250% floor, plus 3.5%. Interest is due at the end of each calendar quarter if the Company selects to pay interest based on the base rate and at the end of each LIBOR period if it selects to pay interest based on LIBOR. As of ~~June 25,~~December 31, 2019, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was ~~5.9228%~~5.275%.

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

Capital Expenditures

Planned capital expenditures for the balance of fiscal ~~2019~~2020 primarily include normal recurring capital expenditures for existing Good Times and Bad Daddy’s ~~restaurants and new Bad Daddy’s~~ restaurants.

~~Assets Held for Sale~~

~~None.~~

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Cash Flows

Net cash provided by operating activities was ~~$4,402,000~~$999,000 for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019. The net cash provided by operating activities for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 was the result of a net loss of ~~$49,000~~$599,000 as well as cash and non-cash reconciling items totaling ~~$4,451,000~~$1,598,000 (these reconciling items are comprised of 1) depreciation and amortization of ~~$3,417,000,~~general assets of $1,126,000, 2) amortization of operating lease assets of $1,097,000, 3) stock-based compensation expense of $74,000, 4) a increase in receivables and other assets of $610,000, 5) a decrease in deferred liabilities and accrued expenses of $632,000 , 6) a decrease in accounts payable of $99,000 and 7) a net increase in amounts related to our operating leases of $613,000.

Net cash used in operating activities was $386,000 for the quarter ended December 25, 2018. The net cash used in operating activities for the quarter ended December 25, 2018 was the result of a net loss of $742,000 as well as cash and non-cash reconciling items totaling $356,000 (these reconciling items are comprised of 1) depreciation and amortization of $1,094,000, 2) accretion of deferred rent of ~~$429,000,~~$126,000, 3) amortization of lease incentive obligations of ~~$374,000,~~$121,000, 4) stock-based compensation expense of ~~$331,000,~~$112,000, 5) a decrease in receivables and other assets of ~~$1,381,000,~~$165,000, 6) an increase in deferred liabilities related to tenant allowances of ~~$368,000,~~$147,000, 7) an increase in accounts payable of ~~$367,000, 8) an increase in prepaids and other assets of $356,000, 9) a decrease in accrued liabilities of $1,023,000 and 10) a net decrease in other operating assets and liabilities of $89,000).~~

Net cash provided by operating activities was $4,627,000 for the three quarters ended June 26, 2018. The net cash provided by operating activities for the three quarters ended June 27, 2017 was the result of net income of $143,000 as well as cash and non-cash reconciling items totaling $4,484,000 (comprised of 1) depreciation and amortization of $2,849,000, 2) accretion of deferred rent of $414,000, 3) amortization of lease incentive obligations of $313,000, 4) stock-based compensation expense of $303,000, 5) Non-cash asset impairment costs of $72,000, 6) an increase in receivables of $128,000, 7) an increase in deferred liabilities related to tenant allowances of $1,258,000, 8) an increase in accounts payable of $194,000,$43,000, 8) an decrease in accrued liabilities of ~~$21,000~~$1,154,000 and 9) a net decrease in other operating assets and liabilities of ~~$144,000)~~$56,000).

Net cash used in investing activities for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 was ~~$7,700,000~~$1,683,000 which primarily reflects the purchases of property and equipment of ~~$4,716,000~~$1,613,000 and the purchase of ~~non-controlling interests~~treasury stock of ~~$3,009,000.~~$75,000. Purchases of property and equipment is comprised ~~primarily~~ of the following:

$~~3,438,000~~1,508,000 in costs for the development of Bad Daddy’s locations

$~~290,000~~69,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants

~~$705,000 for remodel and reimaging related to our Good Times restaurants~~

~~$226,000 for miscellaneous capital expenditures related to our Good Times restaurants~~

~~$57,000 for miscellaneous capital expenditures for our corporate office~~

Net cash used in investing activities for the three quarters ended June 26, 2018 was $5,153,000 which primarily reflects the purchases of property and equipment of $6,560,000 and sale leaseback proceeds of $1,397,000. Purchases of property and equipment is comprised primarily of the following:

$~~5,952,000 in costs for the development of Bad Daddy’s locations~~

~~$307,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants~~

~~$301,000~~15,000 for miscellaneous capital expenditures related to our Good Times restaurants

$21,000 for miscellaneous capital expenditures related to our corporate office

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Net cash used in investing activities for the quarter ended December 25, 2018 was $2,915,000 which primarily reflects the purchases of property and equipment of $2,918,000. Purchases of property and equipment is comprised of the following:

$2,374,000 in costs for the development of Bad Daddy’s locations

$111,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants

$388,000 for reimaging, remodeling and miscellaneous capital expenditures related to our Good Times restaurants

$45,000 for miscellaneous capital expenditures related to assets used by our Colorado maintenance team that provides services for both concepts

Net cash provided by financing activities for the ~~three quarters~~quarter ended ~~June 25,~~December 31, 2019 was ~~$2,440,000,~~$1,231,000, which includes principal payments on notes payable and long-term debt of ~~$2,480,000,~~$500,000, borrowings on notes payable and long-term debt of ~~$6,150,000,~~$2,000,000, contributions from non-controlling interests of $22,000 and distributions to non-controlling interests of $291,000.

Net cash provided by financing activities for the quarter ended December 25, 2018 was $2,271,000, which includes principal payments on notes payable, long-term debt of $4,000, borrowings on notes payable and long-term debt of $2,750,000, proceeds from the exercise of stock options of $3,000 and net distributions to non-controlling interests of ~~$1,233,000.~~

Net cash used in financing activities for the three quarters ended June 26, 2018 was $625,000, which includes principal payments on notes payable, long-term debt and capital leases of $1,613,000, borrowings on notes payable and long-term debt of $1,400,000 and net distributions to non-controlling interests of $412,000.$478,000.

Contingencies

We remain contingently liable on various leases underlying restaurants that were previously sold to franchisees. We have never experienced any losses related to these contingent lease liabilities, however if a franchisee defaults on the payments under the leases, we would be liable for the lease payments as the assignor or sublessor of the lease. Currently we have not been notified nor are we aware of any leases in default under which we are contingently liable, however there can be no assurance that there will not be in the future, which could have a material effect on our future operating results.

Impact of Inflation

The total menu price increases at our Good Times restaurants during fiscal 2019 were approximately 4.4%, and we raised menu prices approximately 4.0% during the first quarter of fiscal 2020. The total menu increases taken at our Bad Daddy’s restaurants during fiscal ~~2018~~2019 were approximately ~~3.2%.~~1.5% on average. We ~~have~~ raised menu prices during the first ~~three quarters~~quarter of fiscal 2019 by approximately ~~1.6%~~2.4%. ~~The total menu price increases at our Good Times restaurants during fiscal 2018 were approximately 2.8%, and we~~Commodity prices have ~~raised menu prices approximately 4.4% during~~increased since the ~~first three quarters~~end of fiscal ~~2019. Commodity costs began to decline during the first half of fiscal 2018~~2019 and ~~continued to decline into~~have been elevated in the first quarter of fiscal ~~2019,~~2020 compared to the first quarter of fiscal 2019. When combined with ~~relative stability during the second and third quarters. We do not anticipate future~~anticipated menu price increases, ~~during the remainder of fiscal 2019 but~~we expect Good Times’ and Bad Daddy’s’ food and packaging costs to be relatively consistent or slightly elevated compared with the current quarter, as a percentage of sales ~~for~~during the remainder of fiscal ~~2019 to be relatively consistent with or slightly elevated compared to the current quarter.~~2020.

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Seasonality

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

Recent Accounting Pronouncements

On September 25, 2019, the first day of fiscal year 2020, the Company adopted the FASB ASU 2016-02, Leases (Topic 842). See notes 2, 3 and 11 to the condensed consolidated financial statements above.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

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ITEM ~~4T.~~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~~Form 10Q, the Company’s Chief Executive Officer and Controller (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were ~~effective.~~effective as of December 31, 2019.

Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended ~~June 25,~~December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting.~~reporting other than controls implemented to account under FASB ASU 2016-02, Leases (Topic 842).

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PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The Company is periodically subject to legal proceedings which are incidental to its business. These legal proceedings are not expected to have a material impact on the Company.

ITEM 1A.

RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our ~~most recent~~ Annual Report on Form 10-K for the fiscal year ended September 24, 2019 filed with the Securities and Exchange Commission.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~

In connection with the termination of employment of Boyd Hoback, the Company’s former Chief Executive Officer, the Company and Mr. Hoback entered into a Repurchase Option Agreement dated October 9, 2019. On December 5, 2019, Mr. Hoback provided notice of his intention to exercise his option to sell under this Agreement and the Company purchased 43,110 shares of Common Stock from Mr. Hoback at a price per share of $1.75.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not ~~Applicable.~~applicable.

ITEM 5.

OTHER INFORMATION

None.

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ITEM 6.

EXHIBITS

(a)

~~(a)~~

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

Exhibit No.	Description

*31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
*31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
*32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
10.1	Severance Agreement, dated October 8, 2019 between Good Times Restaurants Inc. and Boyd E. Hoback (previously filed as Exhibit 10.1 to the registrants Current Report on Form 8-K filed on October 8, 2019 (File No. 000-18590) and incorporated herein by reference)
10.2	Repurchase Option Agreement, dated October 8, 2019 between Good Times Restaurants Inc. and Boyd E. Hoback (previously filed as Exhibit 10.2 to the registrants Current Report on Form 8-K filed on October 8, 2019 (File No. 000-18590) and incorporated herein by reference)
10.3	Cadence Bank Fourth Amendment to Credit Agreement (previously filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed December 13, 2019 (File No. 000-18590) and incorporated herein by reference)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*filed herewith

25 24

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GOOD TIMES RESTAURANTS INC.
DATE: ~~August 9, 2019~~February 14, 2020

	~~Boyd E. Hoback~~ ~~President and Chief Executive Officer~~


		Ryan M. Zink Acting Chief Executive Officer Chief Financial Officer and Treasurer

2625

	June 25, 2019			September 25, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,619		$	3,477
Receivables, net of allowance for doubtful accounts of $0		353			1,735
Prepaid expenses and other		451			151
Inventories		1,124			1,004
Notes receivable		13			14
Total current assets		4,560			6,381

PROPERTY AND EQUIPMENT:
Land and building		4,787			5,002
Leasehold improvements		30,740			27,844
Fixtures and equipment		26,316			24,948
Total property and equipment		61,843			57,794
Less accumulated depreciation and amortization		(25,177	)		(22,549	)
Total net property and equipment		36,666			35,245

OTHER ASSETS:
Notes receivable, net of current portion		16			32
Deposits and other assets		204			207
Trademarks		3,900			3,900
Other intangibles, net		60			35
Goodwill		15,150			15,150
Total other assets		19,330			19,324

TOTAL ASSETS:	$	60,556		$	60,950

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations	$	-		$	17
Accounts payable		4,253			3,774
Deferred income		72			92
Other accrued liabilities		3,476			4,452
Total current liabilities		7,801			8,335

LONG-TERM LIABILITIES:
Maturities of long-term debt and capital lease obligations due after one year		11,150			7,472
Deferred and other liabilities		8,290			7,922
Total long-term liabilities		19,440			15,394

STOCKHOLDERS’ EQUITY:
Good Times Restaurants Inc. stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding as of 06/25/19 and 09/25/18		-			-
Common stock, $.001 par value; 50,000,000 shares authorized, 12,522,778 and 12,481,162 shares issued and outstanding as of 06/25/19 and 09/25/18, respectively		13			12
Capital contributed in excess of par value		57,548			59,385
Accumulated deficit		(26,375	)		(25,414	)
Total Good Times Restaurants Inc. stockholders' equity		31,186			33,983

Non-controlling interests		2,129			3,238
Total stockholders’ equity		33,315			37,221

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	60,556		$	60,950

	Preferred Stock				Common Stock
	Issued Shares		Par Value		Issued Shares		Par Value		Capital Contributed in Excess of Par Value			Non- Controlling Interest In Partnerships			Accumulated Deficit			Total

BALANCES, September 26, 2018		-	$	-		12,481,162	$	12	$	59,385		$	3,238		$	(25,414	)	$37,221

Stock-based compensation cost										112								112
Restricted stock unit vesting						40,949		1										1
Stock option exercise						667				3								3
Income attributable to non-controlling interests													309					309
Distributions to unrelated limited partners													(478	)				(478)
Net loss attributable to Good Times Restaurants Inc and comprehensive loss		0		0		0		0		0			0			(1,051	)	(1,051)

BALANCES, December 25, 2018		-	$	-		12,522,778	$	13	$	59,500		$	3,069		$	(26,465	)	$36,117

Stock-based compensation cost										109								109
Income attributable to non-controlling interests													270					270
Distributions to unrelated limited partners													(408	)				(408)
Purchase of non-controlling interest										(2,171	)		(788	)				(2,959)
Net loss attributable to Good Times Restaurants Inc and comprehensive loss		0		0		0		0		0			0			(450	)	(450)

BALANCES, March 26, 2019		-	$	-		12,522,778	$	13	$	57,438		$	2,143		$	(26,915	)	$32,679

Stock-based compensation cost										110								110
Income attributable to non-controlling interests													333					333
Distributions to unrelated limited partners													(367	)				(367)
Contributions from unrelated limited partners													20					20
Net income attributable to Good Times Restaurants Inc and comprehensive income		0		0		0		0		0			0			540		540

BALANCES, June 25, 2019		-	$	-		12,522,778	$	13	$	57,548		$	2,129		$	(26,375	)	$33,315

	Quarter Ended
	December 31, 2019 (14 Weeks)			December 25, 2018 (13 Weeks)
NET REVENUES:
Restaurant sales	$	30,593		$	25,147
Franchise revenues		221			218
Total net revenues		30,814			25,365

RESTAURANT OPERATING COSTS:
Food and packaging costs		9,032			7,523
Payroll and other employee benefit costs		11,819			9,553
Restaurant occupancy costs		2,438			1,965
Other restaurant operating costs		3,276			2,670
Preopening costs		802			627
Depreciation and amortization		1,079			1,034
Total restaurant operating costs		28,446			23,372

General and administrative costs		2,213			1,974
Advertising costs		546			623
Franchise costs		-			7
Gain on restaurant asset sale		(19	)		(30	)

LOSS FROM OPERATIONS		(372	)		(581	)

Other expenses:
Interest expense, net		(227	)		(160	)
Other expenses		-			(1	)
Total other expenses, net		(227	)		(161	)

NET LOSS		(599	)		(742	)

Income attributable to non-controlling interests		(212	)		(309	)

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(811	)	$	(1,051	)

BASIC AND DILUTED LOSS PER SHARE:
Net loss attributable to Common Shareholders	$	(.06	)	$	(.08	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted		12,596,960			12,504,909

	Treasury Stock, at cost					Common Stock
	Shares		Amount			Issued Shares			Par Value		Capital Contributed in Excess of Par Value		Non- Controlling Interest In Partnerships			Accumulated Deficit			Total

BALANCES, September 24, 2019		-	$	-			12,541,082		$	13	$	57,936	$	1,522		$	(30,551	)	$	28,920

Stock-based compensation cost		-		-			-			-		74		-			-			74
Restricted stock unit vesting		-		-			76,643			-		-		-			-			-
Stock option exercise		-		-			2,413			-		-		-			-			-
Non-controlling interests:
Treasury shares purchased		43,110		(75	)		(43,110	)		-		-		-			-			(75	)
Income		-		-			-			-		-		212			-			212
Contributions		-		-			-			-		-		22			-			22
Distributions		-		-			-			-		-		(291	)		-			(291	)
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss		-		-			-			-		-		-			(811	)		(811	)

BALANCES, December 31, 2019		43,110		(75	)		12,577,028			13		58,010		1,465			(31,362	)		28,051

BALANCES, September 26, 2018		-		-			12,481,162		$	12	$	59,385	$	3,238		$	(25,414	)	$	37,221

Stock-based compensation cost		-		-			-			-		112		-			-			112
Restricted stock unit vesting		-		-			40,949			1		-		-			-			1
Stock option exercise		-		-			667			-		3		-			-			3
Non-controlling interests:
Income		-		-			-			-		-		309			-			309
Contributions		-		-			-			-		-		-			-			-
Distributions		-		-			-			-		-		(478	)		-			(478	)
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss		-		-			-			-		-		-			(1,051	)		(1,051	)

BALANCES, December 25, 2018		-	$	-			12,522,778		$	13	$	59,500	$	3,069		$	(26,465	)	$	36,117

	Fiscal Year to Date
	December 31, 2019			December 25, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(599	)	$	(742	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,126			1,094
Accretion of deferred rent		-			126
Amortization of lease incentive obligation		-			(121	)
Amortization of operating lease assets		1,097			-
Stock-based compensation expense		74			112
Recognition of deferred gain on sale of restaurant building		(9	)		(9	)
Changes in operating assets and liabilities:
Receivables and other		135			617
Inventories		(77	)		(47	)
Deposits and other		(668	)		(452	)
Accounts payable		(99	)		43
Deferred liabilities		-			147
Lease incentives receivable		338			-
Operating lease liabilities		(951	)		-
Accrued and other liabilities		632			(1,154	)
Net cash provided by (used in) operating activities		999			(386	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment		(1,613	)		(2,918	)
Payments for the purchase of treasury stock		(75	)		-
Proceeds from the sale of fixed assets		2			-
Payments received from franchisees and others		3			3
Net cash used in investing activities		(1,683	)		(2,915	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and long-term debt		2,000			2,750
Principal payments on notes payable and long-term debt		(500	)		(4	)
Proceeds from stock option exercise		-			3
Contributions from non-controlling interests		22			-
Distributions to non-controlling interests		(291	)		(478	)
Net cash provided by financing activities		1,231			2,271

NET CHANGE IN CASH AND CASH EQUIVALENTS		547			(1,030	)

CASH AND CASH EQUIVALENTS, beginning of period		2,745			3,477

CASH AND CASH EQUIVALENTS, end of period	$	3,292		$	2,447

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	253		$	125
Change in accounts payable attributable to the purchase of property and equipment	$	(599	)	$	(782	)

	Year-to-Date
	June 25, 2019 Incentive and Non-Qualified Stock Options		June 26, 2018 Incentive and Non-Qualified Stock Options
Expected term (years)		7.5		7.5
Expected volatility		70.65% to 70.80%		75.33 % to 75.67%
Risk-free interest rate		3.01% to 3.10%		2.17% to 2.35%
Expected dividends		-		-