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 ~~December 31, 2019~~June 30, 2020

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-18590



(Exact Name of Registrant as Specified in Its Charter)

NEVADA

84-1133368

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer
Identification Number)

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 ~~February 13,~~August 14, 2020, there were ~~12,577,028~~12,600,507 shares of the Registrant's common stock, par value $0.001 per share, issued and outstanding.

Form 10-Q

Quarter Ended ~~December 31, 2019~~June 30, 2020

	INDEX		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements		3

	Condensed Consolidated Balance Sheets (unaudited) – ~~December 31, 2019~~June 30, 2020 and September 24, 2019		3

	Condensed Consolidated Statements of Operations (unaudited) for the fiscal quarters ~~quarters~~ ended ~~December 31,~~June 30, 2020 and June 25, 2019 ~~and December 25, 2018~~		4

	Consolidated ~~Statement~~Statements of Stockholders’ Equity ~~(unaudited) for the period from~~ ~~September 24, 2019 through December 31, 2019~~(Unaudited) Year-to-Date June 30, 2020		5

	Consolidated Statements of Stockholders’ Equity (Unaudited) Year-to-Date June 25, 2019		6

	Condensed Consolidated Statements of Cash Flows (unaudited) for the fiscal year-to-date ~~year-to-date~~ periods ended ~~December 31,~~June 30, 2020 and June 25, 2019 ~~and December 25, 2018~~	6	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	~~7 - 15~~	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22	30

Item 4.	Controls and Procedures		30
		23
	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	23	31

Item 1A.	Risk Factors	23	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23	31

Item 3.	Defaults Upon Senior Securities	23	31

Item 4.	Mine Safety Disclosures	23	32

Item 5.	Other Information	23	32

Item 6.	Exhibits	24	32

	SIGNATURES	25	33

	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)

	December 31, 2019			September 24, 2019			June 30, 2020			September 24, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,292		$	2,745		$	12,665		$	2,745
Receivables, net of allowance for doubtful accounts of $0		674			810			704			810
Prepaid expenses and other		848			220			1,097			220
Inventories		1,205			1,128			1,087			1,128
Notes receivable		12			12			13			12
Total current assets		6,031			4,915			15,566			4,915
PROPERTY AND EQUIPMENT:
Land and building		4,787			4,787			4,704			4,787
Leasehold improvements		32,794			32,393			33,044			32,393
Fixtures and equipment		28,199			27,597			28,419			27,597
Total property and equipment		65,780			64,777			66,167			64,777
Less accumulated depreciation and amortization		(30,198	)		(29,100	)		(37,607	)		(29,100	)
Total net property and equipment		35,582			35,677			28,560			35,677
OTHER ASSETS:
Operating lease right-of-use assets, net		51,941			-			50,864			-
Notes receivable, net of current portion		10			13			3			13
Deposits and other assets		231			199			221			199
Trademarks		3,900			3,900			3,900			3,900
Other intangibles, net		41			51			26			51
Goodwill		15,150			15,150			5,150			15,150
Total other assets		71,273			19,313			60,164			19,313

TOTAL ASSETS:	$	112,886		$	59,905		$	104,290		$	59,905
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt							$	4,794		$	-
Accounts payable	$	3,076		$	3,774			3,016			3,774
Deferred income		79			79			79			79
Operating lease liabilities, current		4,611			-			4,629			-
Other accrued liabilities		6,018			5,375			5,786			5,375
Total current liabilities		13,784			9,228			18,304			9,228
LONG-TERM LIABILITIES:
Maturities of long-term debt due after one year		14,350			12,850			16,751			12,850
Operating lease liabilities, net of current portion		56,393			-			55,462			-
Deferred and other liabilities		308			8,907			263			8,907
Total long-term liabilities		71,051			21,757			72,476			21,757
STOCKHOLDERS’ EQUITY:
Good Times Restaurants Inc. stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding as of 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
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding as of 06/30/20 and 9/24/19								-			-
Common stock, $.001 par value; 50,000,000 shares authorized, 12,595,654 and 12,541,082 shares issued and outstanding as of 06/30/20 and 09/24/19, respectively								13			13
Capital contributed in excess of par value		58,010			57,936			58,159			57,936
Treasury stock-at cost-shares 43,110 and 0, respectively		(75	)		-			(75	)		-
Accumulated deficit		(31,362	)		(30,551	)		(45,989	)		(30,551	)
Total Good Times Restaurants Inc. stockholders' equity		26,586			27,398			12,108			27,398

Non-controlling interests		1,465			1,522			1,402			1,522
Total stockholders’ equity		28,051			28,920			13,510			28,920

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	112,886		$	59,905		$	104,290		$	59,905

See accompanying notes to condensed consolidated financial statements (unaudited)

Table of Contents

Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

(In thousands except share and per share data)

	Quarter Ended							Quarter Ended						Year-to-Date
	December 31, 2019 (14 Weeks)			December 25, 2018 (13 Weeks)				June 30, 2020 (13 Weeks)			June 25, 2019 (13 Weeks)			June 30, 2020 (40 Weeks)			June 25, 2019 (39 Weeks)
NET REVENUES:
Restaurant sales	$	30,593		$	25,147			$	24,190		$	29,180		$	80,781		$	81,281
Franchise revenues		221			218				167			270			572			701
Total net revenues		30,814			25,365				24,357			29,450			81,353			81,982
							��
RESTAURANT OPERATING COSTS:
Food and packaging costs		9,032			7,523				6,724			8,529			23,376			23,955
Payroll and other employee benefit costs		11,819			9,553				7,389			10,677			29,082			30,458
Restaurant occupancy costs		2,438			1,965				2,089			2,091			6,739			6,221
Other restaurant operating costs		3,276			2,670				3,164			3,070			9,673			8,708
Preopening costs		802			627				31			129			992			949
Depreciation and amortization		1,079			1,034				983			1,104			3,175			3,227
Total restaurant operating costs		28,446			23,372				20,380			25,600			73,037			73,518

General and administrative costs		2,213			1,974				1,689			2,063			5,538			6,091
Advertising costs		546			623				515			659			1,571			1,824
Franchise costs		-			7				6			8			14			31
Gain on restaurant asset sale		(19	)		(30	)
Impairment of goodwill									-			-			10,000			-
Impairment of long-lived assets									932			-			5,291			-
Gain (loss) on restaurant asset sale									(8	)		44			(36	)		5

LOSS FROM OPERATIONS		(372	)		(581	)
INCOME (LOSS) FROM OPERATIONS									843			1,076			(14,062	)		513

Other expenses:
Other Expenses:
Interest expense, net		(227	)		(160	)			(202	)		(202	)		(638	)		(561	)
Other expenses		-			(1	)
Other income									-			(1	)		-			(1	)
Total other expenses, net		(227	)		(161	)			(202	)		(203	)		(638	)		(562	)

NET LOSS		(599	)		(742	)

NET INCOME (LOSS)								$	641		$	873		$	(14,700	)	$	(49	)
Income attributable to non-controlling interests		(212	)		(309	)			(352	)		(333	)		(738	)		(912	)

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(811	)	$	(1,051	)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS								$	289		$	540		$	(15,438	)	$	(961	)

BASIC AND DILUTED LOSS PER SHARE:
Net loss attributable to Common Shareholders	$	(.06	)	$	(.08	)
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Net income (loss) attributable to Common Shareholders								$	.02		$	.04		$	(1.23	)	$	(.08	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted		12,596,960			12,504,909
Basic									12,591,079			12,522,778			12,593,137			12,516,822
Diluted									12,696,028			12,723,323			12,593,137			12,516,822

See accompanying notes to condensed consolidated financial statements (unaudited)

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~~Year-to-Date June 30, 2020

(In thousands, except share and per share data)

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

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

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

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

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

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

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

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

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

Stock-based compensation cost	-	-		-		-		75		-			-			75
Restricted stock unit vesting	-	-		14,000		-		-		-			-			-
Non-controlling interests:
Income	-	-		-		-		-		174			-			174
Distributions	-	-		-		-		-		(95	)		-			(95	)
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss	-	-		-		-		-		-			(14,916	)		(14,916	)

BALANCES, March 31, 2020	43,110	(75	)	12,591,028	$	13	$	58,085	$	1,544		$	(46,278	)	$	13,289

Stock-based compensation cost	-	-		-		-		74		-			-			74
Restricted stock unit vesting	-	-		4,626		-		-		-			-			-
Non-controlling interests:
Income	-	-		-		-		-		352			-			352
Distributions	-	-		-		-		-		(494	)		-			(494	)
Net Loss attributable to Good Times Restaurants Inc and comprehensive loss	-	-		-		-		-		-			289			289

BALANCES, June 30, 2020	43,110	(75	)	12,595,654	$	13	$	58,159	$	1,402		$	(45,989	)	$	13,510

See accompanying notes to consolidated financial statements (unaudited)

Table of Contents

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)

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

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

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

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

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

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

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

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

See accompanying notes to condensed consolidated financial statements (unaudited)

Table of Contents

Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)

~~(Unaudited)~~

(In thousands)

	Fiscal Year to Date						Fiscal Year-to-Date
	December 31, 2019			December 25, 2018			June 30, 2020 (40 Weeks)			June 25, 2019 (39 Weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(599	)	$	(742	)	$	(14,700	)	$	(49	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,126			1,094			3,313			3,417
Accretion of deferred rent		-			126			-			429
Amortization of lease incentive obligation		-			(121	)		-			(374	)
Amortization of operating lease assets		1,097			-			3,100			-
Impairment of goodwill								10,000			-
Impairment of long-lived assets								5,291			-
Stock-based compensation expense		74			112			223			331
Recognition of deferred gain on sale of restaurant building		(9	)		(9	)		(28	)		(27	)
Loss on disposal of restaurant assets								-			58
Changes in operating assets and liabilities:
Receivables and other		135			617			443			1,381
Inventories		(77	)		(47	)		41			(120	)
Deposits and other		(668	)		(452	)		(986	)		(356	)
Accounts payable		(99	)		43			47			367
Deferred liabilities		-			147			-			368
Lease incentives receivable		338			-
Operating lease liabilities		(951	)		-			(2,730	)		-
Accrued and other liabilities		632			(1,154	)		374			(1,023	)
Net cash provided by (used in) operating activities		999			(386	)
Net cash provided by operating activities								4,388			4,402

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment		(1,613	)		(2,918	)		(2,294	)		(4,716	)
Payments for the purchase of treasury stock		(75	)		-			(75	)		-
Payments for the purchase of non-controlling interests								-			(3,009	)
Proceeds from the sale of fixed assets		2			-			55			8
Payments received from franchisees and others		3			3			9			17
Net cash used in investing activities		(1,683	)		(2,915	)		(2,305	)		(7,700	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and long-term debt		2,000			2,750			16,945			6,150
Principal payments on notes payable and long-term debt		(500	)		(4	)		(8,250	)		(2,480	)
Proceeds from stock option exercise		-			3			-			3
Contributions from non-controlling interests		22			-			22			20
Distributions to non-controlling interests		(291	)		(478	)		(880	)		(1,253	)
Net cash provided by financing activities		1,231			2,271			7,837			2,440

NET CHANGE IN CASH AND CASH EQUIVALENTS		547			(1,030	)		9,920			(858	)

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

CASH AND CASH EQUIVALENTS, end of period	$	3,292		$	2,447		$	12,665		$	2,619

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	253		$	125		$	625		$	496
Change in accounts payable attributable to the purchase of property and equipment	$	(599	)	$	(782	)	$	(805	)	$	112

See accompanying notes to condensed consolidated financial statements (Unaudited)

Table of Contents

GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1.

Basis of Presentation

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

~~BD of Colo~~BDC 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 ~~December 31, 2019,~~June 30, 2020, operates thirty-two company-owned and five joint-venture full-service 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 ~~December 31, 2019,~~June 30, 2020, operates eighteen Company-owned and seven joint-venture drive-thru fast food hamburger restaurants under the name Good Times Burgers & Frozen Custard, all of which are located in Colorado. In addition, Drive Thru has eight franchisee-owned restaurants, with six operating in Colorado and two in Wyoming.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (“GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position of the Company as of ~~December 31, 2019~~June 30, 2020 and the results of its operations and its cash flows for the three fiscal quarters ended ~~December 31, 2019~~June 30, 2020 and ~~December~~June 25, ~~2018.~~2019. Operating results for the three fiscal ~~quarter~~quarters ended ~~December 31, 2019~~June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending September 29, 2020. The condensed consolidated balance sheet as of September 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 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. 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 and consisted of 13 weeks. The year-to-date periods ended June 30, 2020 and June 25, 2019 consisted of 40 weeks and 39 weeks, respectively.

Advertising Costs – We utilize Advertising Funds to administer certain advertising programs for both the Bad Daddy’s and Good Times brands that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to the fund. ~~As the~~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 ~~$58,000~~$176,000 and ~~$67,000~~$223,000 for the first three quarters ~~ended December 31,~~of 2020 and 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.

COVID-19

The global crisis resulting from the spread of COVID-19 had a substantial impact on our restaurant operations for the 13-week and 40-week periods ended June 30, 2020. During portions of the month of March 2020 through late May 2020, all of the Company’s Bad Daddy’s Burger Bar restaurants were open only for delivery and carry-out service, with dining rooms closed by government orders. Beginning in late May 2020, we began to re-open dining rooms at Bad Daddy’s as local regulations allowed. By early June, we had re-opened all the dining rooms at Bad Daddy’s, which currently remain open. Although our dining rooms are open, all operate at some reduction of capacity, whether driven by explicit capacity reductions under government orders, or due to social distancing protocols that are either mandated by the same government orders, or which we abide by as under our own internal protocols designed to maintain a safe foodservice environment, both for our employees and for our customers.

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Our operating results substantially depend upon our ability to drive traffic to our restaurants, and for our Bad Daddy’s Burger Bar restaurants, to serve guests in our dining rooms. We cannot currently estimate the duration of the impact of the COVID-19 pandemic on our business; neither are we able to predict how the pandemic will evolve nor how various government entities will respond to its evolution. Should governments choose to reverse course and re-close dining rooms, our business would be adversely affected. Even without government orders, customers may choose to reduce or eliminate in-restaurant dining because of increasing numbers of COVID-19 cases, hospitalizations, or deaths.

Additionally, in connection with spread of COVID-19, there have been disruptions in various food supply chains in the United States. Our operating results substantially depend upon our ability to obtain sufficient quantities of products such as beef, bacon, and other products used in the production of items served and sold to our guests. Ongoing impacts of the COVID-19 pandemic could result in product shortages and in-turn could require us to serve a limited menu, restrict number of items purchased per guest, or close some or all of our restaurants for an indeterminate period of time. Ongoing material adverse impacts from the COVID-19 pandemic could result in reduced revenue and cash flow and could affect our assessments of impairment of intangible assets, long-lived assets, or goodwill.

We took extraordinary actions to increase our liquidity in response to COVID-19, including temporarily reducing employee pay, reductions in force, and obtaining Paycheck Protection Program (the “PPP”) loans, the PPP is sponsored by the Small Business Administration (the “SBA”). The PPP is part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). We have since significantly increased employment levels and restored pay to employees. Although we currently have a meaningful cash balance and generated significant cash flow from operations during this quarter, should business decline significantly as a result of the pandemic we would not likely be able to take some of the same actions without negatively impacting the long-term viability of the business. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur.

Nasdaq Listing

On April 24, 2020, the Company received a letter from the Listing Qualifications Staff of the Nasdaq Stock Market (“Nasdaq”), notifying the Company that it no longer satisfied Nasdaq Listing Rule 5550(a)(2) (the “Rule”), which requires the Company to a maintain minimum bid price of $1 per share.

On June 1, 2020, the Company received a letter from the Listing Qualifications Staff of Nasdaq, notifying the Company that it had regained full compliance with the Nasdaq minimum average share price listing requirement Rule. The Company regained compliance after its closing share price on May 29, 2020 and its average closing share price for the consecutive 30-days of trading ending May 29, 2020 were both above $1.00 per share.

Note 2.

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,~~10, Leases in the notes to our unaudited condensed consolidated financial statements.

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

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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.

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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

Revenue Recognition

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

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

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

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Note 5.

Goodwill and Intangible Assets

The following table presents goodwill and intangible assets as of ~~December 31, 2019~~June 30, 2020 and September 24, 2019 (in thousands):

	December 31, 2019							September 24, 2019							June 30, 2020							September 24, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible assets subject to amortization:
Franchise rights	$	116	$	(110	)	$	6	$	116	$	(104	)	$	12	$	-	$	-		$	-	$	116	$	(104	)	$	12
Non-compete agreements		50		(15	)		35		65		(26	)		39		50		(24	)		26		65		(26	)		39
		166		(125	)		41		181		(130	)		51		50		(24	)		26		181		(130	)		51
Indefinite-lived intangible assets:
Trademarks		3,900		-			3,900		3,900		-			3,900		3,900		-			3,900		3,900		-			3,900
Intangible assets, net	$	4,066	$	(125	)	$	3,941	$	4,081	$	(130	)	$	3,951	$	3,950	$	(24	)	$	3,926	$	4,081	$	(130	)	$	3,951

Goodwill	$	15,150	$	-		$	15,150	$	15,150	$	-		$	15,150	$	5,150	$	-		$	5,150	$	15,150	$	-		$	15,150

~~The~~As discussed further in Note 11, the Company ~~had no~~recorded a $10,000,000 impairment to goodwill ~~impairment losses~~ in the ~~periods presented in the above table or any prior periods.~~second fiscal quarter of 2020 related to goodwill attributable to its Bad Daddy’s reporting unit.

There were no impairments to intangible assets during the ~~quarter~~three quarters ended ~~December 31, 2019.~~June 30, 2020. The aggregate amortization expense related to these intangible assets subject to amortization was ~~$10,000~~$25,000 for the three quarters ended June 30, 2020. The franchise rights were fully amortized at the end of the second fiscal quarter ~~December 31, 2019.~~of 2020 and the intangible asset and the related accumulated amortization were written off in the third fiscal quarter of 2020.

The estimated aggregate future amortization expense as of ~~December 31, 2019~~June 30, 2020 is as follows (in thousands):

Remainder of 2020 $ 18
2021 17
2022 6
$ 41

~~Note 6.~~

~~Common Stock~~

Remainder of 2020	$	3
2021		17
2022		6
	$	26

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

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Note 7.6.

Stock-Based Compensation

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

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

Our net loss for the ~~quarter~~three quarters ended ~~December 31,~~June 30, 2020 and June 25, 2019 includes $223,000 and ~~December 25, 2018 includes $75,000 and $112,000,~~$331,000, respectively, of compensation costs related to our stock-based compensation arrangements.

Stock Option awards

The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options and stock awards granted during the quarter ended ~~December 31, 2019.~~June 30, 2020. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.

During the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020, there were no incentive stock options granted.

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

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:

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	Quarter Ended ~~December~~June 25, ~~2018~~2019 Incentive and Non-Qualified Stock Options

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

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

The following table summarizes stock option activity for the quarter ended ~~December 31, 2019~~June 30, 2020 under all plans:

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

Outstanding at beginning of year		703,164		$	3.53			703,164		$	3.53
Options exercised		(15,646	)	$	1.48			(15,646	)	$	1.48
Forfeited								(45,963	)	$	3.78
Expired		(8,579	)	$	3.45			(8,579	)	$	3.45
Outstanding December 31, 2019		678,939		$	3.57	5.9
Exercisable December 31, 2019		478,730		$	3.40	5.0
Outstanding June 30, 2020								632,976		$	3.56		5.4
Exercisable June 30, 2020								472,871		$	3.38		4.6

As of ~~December 31, 2019,~~June 30, 2020, the aggregate intrinsic value of both the outstanding and exercisable options was ~~$2,000 and $2,000, respectively.~~$2,000. Only options whose exercise price is below the current market price of the underlying stock are included in the intrinsic value calculation.

As of ~~December 31, 2019,~~June 30, 2020, the total remaining unrecognized compensation cost related to non-vested stock options was ~~$319,000~~$215,000 and is expected to be recognized over a weighted average period of approximately 21.9 years.

There were 15,646 stock options exercised that resulted in an issuance of 2,413 shares during the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 with no proceeds in conjunction with the termination of the Company’s CEO pursuant to a severance and separation agreement. There were 667 stock options exercised during the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018~~2019 with proceeds of approximately $3,000.

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Restricted Stock Units

During the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020 the Company granted a total of ~~46,336~~60,336 restricted stock units from available shares under its 2018 Plan. ~~The~~46,336 shares were issued with a grant date fair market value of $1.54 which is equal to the closing price of the stock on the date of the ~~grant. The~~grant, these restricted stock units vest three years following the grant date. 14,000 shares were issued with a grant date fair market value of $1.67 which is equal to the closing price of the stock on the date of the grant, these restricted stock units vested on their grant date.

During the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018,~~2019, 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 grant vests over three years following the grant date.

A summary of the status of non-vested restricted stock as of ~~December 31, 2019~~June 30, 2020 is presented below.

Shares Grant Date Fair
Value Per Share

Non-vested shares at beginning of year 165,275 $2.70 to $3.95
Granted 46,336 $1.54
Vested (86,499 ) $2.70 to $4.18
Non-vested shares at December 31, 2019 125,112 $2.70 to $4.18

	Shares			Grant Date Fair Value Per Share

Non-vested shares at beginning of year		165,275		$2.70 to $3.95
Granted		60,336		$1.54 to $1.67
Forfeited		(8,992	)	$3.55 to $3.95
Vested		(111,670	)	$1.67 to $4.18
Non-vested shares at June 30, 2020		104,949		$2.70 to $4.18

As of ~~December 31, 2019,~~June 30, 2020, there was ~~$313,000~~$198,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately ~~1.2~~.9 years.

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Note 8.7.

Notes Payable and Long-Term Debt

Cadence Credit Facility

The Company maintains a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $17,000,000 with a maturity date of December 31, 2021 (the “Cadence Credit Facility”). On February 21, 2019, the Cadence Credit Facility was amended, in connection with the ~~RGWP Repurchase (see Note 8~~repurchase of minority interests related to ~~the financial statements),~~three Bad Daddy’s restaurants, to retroactively attribute EBITDA previously attributed to non-controlling interests to the Company for purposes of certain financial covenants. On December 9, 2019, the Cadence Credit Facility was amended in connection with the separation of the Company’s former CEO, to amend the definition of “Consolidated EBITDA” for the purposes of financial covenants, to require certain installment payments, and to permit the company to make “Restricted Payments” (as defined in the Cadence Credit Facility)~~. In~~ 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 ~~December 31, 2019,~~June 30, 2020, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was ~~5.275%~~3.73%.

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 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 various amendments, the Company has paid loan origination costs including professional fees of approximately $292,000 since the inception of the credit facility and is amortizing these costs over the term of the credit agreement.

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

As of ~~December 31, 2019,~~June 30, 2020, the outstanding balance on borrowings against the facility was ~~$14,350,000.~~$9,900,000. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of ~~December 31, 2019,~~June 30, 2020, 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,~~June 30, 2020 in $250,000 installments on the last business day each of March, June, September, and December in each calendar year. The total loan commitment is permanently reduced by the corresponding amount of each such repayment on such date. New borrowings are permitted up to the amount of the loan commitment. The note matures and is due in its entirety on December 31, 2021.

The Cadence Credit Facility, as amended, contains certain affirmative and negative covenants and events of default that the Company considers customary for an agreement of this type, including covenants setting a maximum leverage ratio of 5.35:1, a minimum fixed charge coverage ratio of 1.25:1 and minimum liquidity of $2,000,000. As of June 30, 2020, the Company was in compliance with all covenants under the Cadence Credit Facility.

On April 14, 2020, the Company entered into a Consent and Forbearance Agreement effective March 31, 2020 (the “Forbearance Agreement”) with respect to the Cadence Credit Facility. The Company informed Cadence that certain events of default may occur as a result of Company’s failure to comply with certain financial covenants for the fiscal quarter ended on or about March 31, 2020 (collectively, the “Potential Events of Default”). Pursuant to the terms of the Forbearance Agreement, during the Forbearance Period (as defined below), Cadence agreed to forbear from exercising any available rights and remedies under the Cadence Credit Facility to the extent such rights and remedies arise exclusively as a result of the Potential Events of Default. Further, Cadence agreed to consent to the Company’s request to defer the principal payment (the “Payment Deferral”) on the loans due on June 30, 2020 until the maturity date. The forbearance period (the “Forbearance Period”) expired at 11:59 p.m. (Eastern time) on June 30, 2020 and the Company is currently in compliance with all of its financial covenants.

Paycheck Protection Program Loans

The Loans are evidenced by individual promissory notes of each of the Borrowers dated April 29, 2020 executed by each Borrower on May 7, 2020 (together, the “Notes”) in favor of the Lender which Notes bear interest at the rate of 1.00% per annum. All or a portion of the Loans may be forgiven by the SBA upon application by the Borrowers accompanied by documentation of expenditures in accordance with SBA requirements under the PPP, which includes employees being kept on the payroll for twenty-four weeks after the date of the Loans and the proceeds of such Loans being used for payroll, rent, mortgage interest or utilities. Congress subsequently passed the PPP Flexibility Act which modified certain provisions of the PPP program, including expanding the original eight-week covered period to a period of twenty-four weeks. The SBA and the Treasury continue to develop and issue new and updated guidance regarding the PPP loan application process, including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the PPP. The Company continues to track the guidance as it is released and assess and re-assess various aspects of its application as necessary based on the guidance. The Company believes it qualifies for the PPP and is compliant in all aspects with its use of PPP funds. However, in the absence of final guidance or regulations the Company cannot give any assurance that the Loans will be forgivable in whole or in part.

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In the event that any portion of the Loans are not forgiven in accordance with the PPP, following a deferral period that ends November 2, 2020, the Company will be required to pay the Lender monthly payments of principal and interest in an aggregate amount of $489,000 to repay the PPP Loans in full on or before April 29, 2022. The Loans may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Notes contain certifications and agreements related to the PPP, as well as customary default and other provisions. We reflect the full principal amount of the PPP loans as debt, accounting for such loans under ASC 470, with current maturities of approximately $3.8 million. We intend to account for the forgiveness of such loans at the time such forgiveness is granted.

Components of Long-Term Debt

The components of long-term debt as reflected on our consolidated balance sheet are as follows:


Current Maturities
Cadence Credit Facility	$	1,000
PPP Loans		3,794
Total Current Maturities		4,794

Maturities due after One Year
Cadence Credit Facility		8,900
PPP Loans		7,851
Total Maturities after One Year	$	16,751

Note 9.8.

Net Income (Loss) per Common Share

Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities for this calculation consist of in-the-money outstanding stock options, restricted stock ~~grants~~units and warrants (which were assumed to have been exercised at the average market price of the common shares during the reporting period). The treasury stock method is used to measure the dilutive impact of in-the-money stock options. Options and restricted stock units for 804,051 and 900,307 shares of common stock were not included in computing diluted EPS for the quarters ended December 31, 2019 and December 25, 2018, respectively, because their effects were anti-dilutive.

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding:

	Quarter Ended				Year-to-Date
	June 30, 2020		June 25, 2019		June 30, 2020		June 26, 2019

Weighted-average shares outstanding basic		12,591,079		12,522,778		12,593,137		12,516,822
Effect of potentially dilutive securities:
Stock options		-		15,101		-		-
Restricted stock units		104,949		185,444		-		-
Weighted-average shares outstanding diluted		12,696,028		12,723,323		12,593,137		12,516,822
Excluded from diluted weighted-average shares outstanding:
Antidilutive		632,976		654,468		737,925		891,172

Note ~~10.~~9.

Contingent Liabilities and Liquidity

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

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The Company and a third-party are both primary tenants on a lease related to a former Good Times restaurant. The third-party has an agreement with the Company to pay all amounts due under this lease. The third party operated the restaurant under a franchise agreement and is also a current franchisee of another Good Times restaurant and is the non-controlling partner in seven joint-venture Good Times restaurants. The Company performs accounting services for the third-party and has direct visibility to its financial position and credit worthiness. Based upon its assessment of such, the Company has not recorded any liability associated with this obligation as it does not expect to be required to pay any amount on the obligation.

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

Note ~~11.~~10.

Leases

The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate office. The initial lease terms range from 10 years to 20 years, most of which include 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:~~June 30, 2020:

Lease cost	Classification	Total			Classification	Total
Operating lease cost	Occupancy, Other restaurant operating costs and General and administrative expenses, net	$	1,934		Occupancy, Other restaurant operating costs and General and administrative expenses, net	$	1,665
Variable lease cost	Occupancy		20		Occupancy		20
Sublease income	Occupancy		(100	)	Occupancy		(135	)
		$	1,854			$	1,550

Components of operating lease costs are as follows for the three fiscal quarters ended June 30, 2020:

Lease cost	Classification	Total
Operating lease cost	Occupancy, Other restaurant operating costs and General and administrative expenses, net	$	5,436
Variable lease cost	Occupancy		60
Sublease income	Occupancy		(365	)
		$	5,131

Weighted average lease term and discount rate are as follows:

	~~December 31, 2019~~June 30, 2020
Weighted average remaining lease term (in years)		~~11.0~~10.6

Weighted average discount rate		5.0	%

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Supplemental cash flow disclosures for the three fiscal ~~quarter~~quarters ended ~~December 31, 2019:~~June 30, 2020:

	December 31, 2019		June 30, 2020
Cash paid for operating lease liabilities	$	1,713	$	5,125

Non-cash operating lease assets obtained in exchange for operating lease liabilities	$	2,211	$	3,077

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Supplemental balance sheet disclosures:

					June 30, 2020
Right-of-use assets	Operating lease assets	$	51,941	Operating lease assets	$	50,864

Current lease liabilities	Operating lease liability	$	4,611	Operating lease liability	$	4,629
Non-current lease liabilities	Operating lease liability, less current portion		56,393	Operating lease liability, less current portion		55,462
Total lease liabilities		$	61,004		$	60,091

Future minimum rent payments for our operating leases for each of the next five years as of ~~December 31, 2019~~June 30, 2020 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			Total
2020	$	7,256
Remainder of 2020				$	2,049
2021		6,884			7,477
2022		6,677			7,519
2023		6,348			7,601
2024		5,928			7,453
Thereafter		18,988			46,415
Total minimum lease payments		52,081			78,514
Less: sublease rentals		(1,058	)
Net minimum lease payments	$	51,023
Less: imputed interest					(18,423	)
Present value of lease liabilities				$	60,091

The above future minimum rental amounts exclude the amortization of deferred lease incentives, renewal options that are not reasonably assured of renewal, and contingent rent. The Company generally has escalating rents over the term of the leases and records rent expense on a straight-line basis.

Note ~~12.~~11.

Impairment of Long-Lived Assets and Goodwill

Long-Lived Assets.We review our long-lived assets including land, property and equipment for impairment when there are factors that indicate that the carrying amount of an asset may not be recoverable. We assess recovery of assets at the individual restaurant level and typically include an analysis of historical cash flows, future operating plans, and cash flow projections in assessing whether there are indicators of impairment. Recoverability of assets to be held and used is measured by comparing the net book value of the assets of an individual restaurant to the fair value of those assets. This impairment process involves significant judgment in the use of estimates and assumptions pertaining to future projections and operating results.

Given the 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 restaurants in ~~the greater Denver metropolitan area.~~Colorado. We recorded a non-cash charge of $391,000, related to the impairment of these restaurants in the fiscal quarter ending September 24, 2019. In July of 2019, the Company entered into a sublease agreement for one of these two restaurants whereby the Company, upon lease commencement subject to due diligence provisions, will receive sublease income substantially equal to its cash lease costs associated with this location. We continued to operate the restaurant until December 31, 2019, the tenant took possession on January 1, 2020 and the sublease commenced in ~~early February~~May 2020.

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Three of these restaurants are Bad Daddy’s restaurants, two in ~~the Denver/front-range communities of~~ Colorado and ~~Greenville,~~one in South Carolina. We recorded non-cash charges of $2,380,000 related to the impairment of these restaurants during the fiscal quarter ending September 24, 2019.

Given the results of our analysis at March 31, 2020, we identified five additional restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets.

The restaurants are all Bad Daddy’s restaurants, two in North Carolina and one each in Tennessee, Georgia and Colorado. We recorded non-cash charges of $4,359,000 related to the impairment of these restaurants during the quarter ending March 31, 2020.

Given the results of our analysis at June 30, 2020, we identified one additional Bad Daddy’s restaurant in Colorado where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets and recorded non-cash charges of $932,000 related to the impairment of these restaurants during the quarter ending June 30, 2020.

There were no impairments in the three fiscal quarters ending June 25, 2019.

Trademarks.Trademarks have been determined to have an indefinite life. We evaluate our trademarks for impairment annually and on an interim basis as events and circumstances warrant by comparing the fair value of the trademarks with their carrying amount. There was no impairment required to the acquired trademarks as of ~~December 31, 2019~~June 30, 2020 and ~~December~~June 25, ~~2018.~~2019.

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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 ~~December 31, 2019,~~June 30, 2020, the Company had $96,000 of goodwill attributable to the Good Times reporting unit and ~~$15,054,000~~$5,054,000 of goodwill attributable to its Bad Daddy’s reporting unit.

In March 2020, the outbreak of the COVID-19 pandemic prompted authorities in most jurisdictions where the Company operates to issue stay-at-home orders, leading to an unexpected significant disruption to the Company's business requiring the Company to close its restaurant dining rooms and operate its Bad Daddy’s restaurants under a delivery and carry-out model. As such, the consequences of the outbreak of the COVID-19 pandemic coupled with a sustained decline in the Company's stock price were determined to be indicators of impairment for its Bad Daddy’s reporting unit. As such, using Level 3 inputs, the Company performed a quantitative goodwill impairment assessment using both the discounted cash flow method and guideline public company method to determine the fair value of its reporting unit. Significant assumptions and estimates used in determining fair value include future revenues, operating costs, working capital changes, capital expenditures, and a discount rate that approximates the Company's weighted average cost of capital. Based on the quantitative assessment, the Company determined that the fair value of its reporting unit was less than its carrying value and recognized a non-cash goodwill impairment charge of $10.0 million in the fiscal quarter ending March 31,2020, equal to the excess of the Bad Daddy’s reporting unit's carrying value above its fair value. No goodwill impairment charges were recognized ~~as of December 31, 2019 and December 25, 2018.~~related to goodwill attributable to its Good Times reporting unit.

Changes in the carrying amount of goodwill for the three quarters ended June 30, 2020 are as follows (in thousands):

	Total Goodwill
Balance as of September 24, 2019	$	15,150
Impairment of Goodwill		(10,000	)
Balance as of June 30, 2020		5,150

Note ~~13.~~12.

Income Taxes

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

The Company has significant net operating loss ~~carry-forwards~~carryforwards from prior years and incurred additional net operating losses during the three quarters ended ~~December 31, 2019~~June 30, 2020 and ~~December~~June 25, ~~2018.~~2019. These losses resulted in an increase in the related deferred tax assets; however, full valuation allowances were made which reduced these deferred tax assets to zero; therefore, no income tax provision or benefit was recognized for the quarter ended ~~December 31,~~June 30, 2020 and June 25, 2019 ~~and 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 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 ~~December 31, 2019.~~June 30, 2020.

Note ~~14.~~13.

Non-controlling Interests

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

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

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The following table summarizes the activity in non-controlling interests during the quarter ended ~~December 31, 2019~~June 30, 2020 (in thousands):

	Bad Daddy’s			Good Times			Total			Bad Daddy’s			Good Times			Total
Balance at September 24, 2019	$	1,190		$	332		$	1,522		$	1,190		$	332		$	1,522
Income		133			79			212			318			420			738
Contributions		22			-			22			22			-			22
Distributions		(186	)		(105	)		(291	)		(386	)		(494	)		(880	)
Balance at December 31, 2019	$	1,159		$	306		$	1,465
Balance at June 30, 2020										$	1,144		$	258		$	1,402

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

14Note 14.

Subsequent Events

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None.

Note 15.

Segment Reporting

All of our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service upscale casual dining industry while our Good Times Burgers and Frozen Custard restaurants (Good Times) compete in the quick-service 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 (in thousands):

	Quarter Ended						Quarter Ended						Year-to-Date
	December 31, 2019			December 25, 2018			June 30, 2020 (13 Weeks)			June 25, 2019 (13 Weeks)			June 30, 2020 (27 Weeks)			June 25, 2019 (26 Weeks)
Revenues
Bad Daddy’s	$	22,902		$	18,341		$	14,928		$	21,181		$	57,199		$	59,996
Good Times		7,912			7,024			9,429			8,269			24,154			21,986
	$	30,814		$	25,365		$	24,357		$	29,450		$	81,353		$	81,982
Income (loss) from operations
Bad Daddy’s	$	(485	)	$	(568	)	$	(906	)	$	494		$	(15,906	)	$	300
Good Times		164			74			1,827			650			2,036			505
Corporate		(51	)		(87	)		(78	)		(68	)		(192	)		(292	)
	$	(372	)	$	(581	)	$	843		$	1,076		$	(14,062	)	$	513
Payments for the purchase of property and equipment
Capital expenditures
Bad Daddy’s	$	1,577		$	2,486		$	330		$	609		$	2,171		$	3,727
Good Times		15			388			3			301			90			930
Corporate		21			44			7			13			33			59
	$	1,613		$	2,918		$	340		$	923		$	2,294		$	4,716

	December 31, 2019		September 24, 2019		June 30, 2020		September 24, 2019
Property and equipment, net
Bad Daddy’s	$	30,560	$	30,479	$	24,054	$	30,479
Good Times		4,741		4,890		4,269		4,890
Corporate		281		308		237		308
	$	35,582	$	35,677	$	28,560	$	35,677

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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 24, 2019. Also, documents subsequently filed by us with the SEC and incorporated herein by reference may contain forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following:

(I)

The disruption to our business from the novel coronavirus (COVID-19) pandemic and the impact of the pandemic on our results of operations, financial condition and prospects. The disruption and effect on our business may vary depending on the duration and extent of the COVID-19 pandemic and the impact of federal, state and local governmental actions and customer behavior in response to the pandemic.

(II)

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

(II)

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

We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers' compensation or energy; inadequate number of hourly paid employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 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 targeted unit growth of the Bad Daddy’s concept while at the same time growing same store sales and improving the profitability of both the Bad Daddy’s and the Good Times concepts.

COVID-19

Our operating results substantially depend upon our ability to drive traffic to our restaurants, and for our Bad Daddy’s Burger Bar restaurants, to serve guests in our dining rooms. We cannot currently estimate the duration of the impact of the COVID-19 pandemic on our business; neither are we are unable to predict how the pandemic will evolve nor how various government entities will respond to its evolution. Should governments choose to reverse course and re-close dining rooms, our business would be adversely affected. Even without government orders, customers may choose to reduce or eliminate in-restaurant dining because of increasing numbers of COVID-19 cases, hospitalizations, or deaths.

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We took extraordinary actions to manage our liquidity position in response to COVID-19, including temporarily reducing employee pay, reductions in force, and obtaining PPP loans under the CARES Act. We have since significantly increased employment levels and restored pay to employees. Although we currently have a meaningful cash balance and generated significant cash flow from operations during this quarter, should business decline significantly as a result of the pandemic we would not likely be able to take some of the same actions without negatively impacting the long-term viability of the business. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur.

Growth Strategies and Outlook.

We believe there are significant opportunities to ~~develop new units,~~ grow customer traffic and increase awareness of our brands. ~~The following sets forth key elements~~Prior to the COVID-19 pandemic we reduced our development profile as we sought to improve our financial position, and while we believe there are unit growth opportunities for both of our ~~growth strategy:~~concepts, we are evaluating that in-line with the impact of the pandemic on the restaurant industry.

~~Relentlessly pursue same stores sales at both concepts~~

~~Improve operational efficiencies and expense management~~

~~Pursue disciplined and targeted growth of Bad Daddy’s Burger Bar restaurants~~

Restaurant locations.

As of ~~December 31, 2019,~~June 30, 2020, we operated, franchised or licensed a total of thirty-nine Bad Daddy’s restaurants and thirty-three Good Times restaurants. The following table presents the number of restaurants operating at the end of the ~~first~~third fiscal quarters of 2020 and 2019.

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

	Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total				Bad Daddy’s Burger Bar				Good Times Burgers & Frozen Custard				Total
	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Alabama		1		-		-		-		1		-		1		-		-		-		1		-
Colorado		12		12		25		26		37		38		12		12		25		26		37		38
Georgia		4		4		-		-		4		4		4		4		-		-		4		4
North Carolina		14		13		-		-		14		13		14		14		-		-		14		14
Oklahoma		1		1		-		-		1		1		1		1		-		-		1		1
South Carolina		3		1		-		-		3		1		3		1		-		-		3		1
Tennessee		2		1		-		-		2		1		2		1		-		-		2		1
Total		37		32		25		26		62		58		37		33		25		26		62		59

Franchise/~~License~~License:

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

Results of Operations

~~The following presents certain historical financial information of our operations. This financial information includes results for our~~Fiscal quarter ended ~~December 31, 2019 and December~~June 30, 2020 compared to fiscal quarter ended June 25, ~~2018.~~2019:

Net Revenues.Net revenues for the quarter ended ~~December 31, 2019 increased $5,449,000~~June 30, 2020 decreased $5,093,000 or ~~21.5%~~17.3% to ~~$30,814,000~~$24,357,000 from ~~$25,365,000~~$29,450,000 for the quarter ended ~~December~~June 25, ~~2018.~~2019. Bad Daddy’s concept revenues ~~increased $4,561,000~~decreased $6,253,000 while our Good Times concept revenues increased ~~$888,000.~~$1,160,000.

Bad Daddy’s restaurant sales ~~increased $4,563,000~~decreased $6,165,000 to ~~$22,813,000~~$14,915,000 for the quarter ended ~~December 31, 2019~~June 30, 2020 from ~~$18,250,000~~$21,080,000 for the quarter ended ~~December~~June 25, ~~2018, primarily attributable to the~~2019. Sales were positively impacted by four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter ~~ended December 31, 2019, and~~of 2020, offset by the negative impact of our dining room closures due to the 53^rd ~~week of the fiscal year. We estimate the impact of the extra week of sales to be approximately $2,015,000.~~COVID-19 pandemic. Bad Daddy’s same store restaurant sales decreased ~~3.4%~~36.7% during the quarter ended ~~December 31, 2019~~June 30, 2020 compared to the same prior-year ~~quarter.~~quarter, substantially driven by decreases during April and May, when dining rooms were closed, and to a lesser amount when dining rooms were opened, but with capacity restrictions. Bad Daddy’s restaurants are included in same store sales after they have been open a full eighteen months. The average menu price increase for the quarter ended ~~December 31, 2019~~June 30, 2020 over the same prior-year quarter was approximately ~~2.5%~~2.9%. There were ~~twenty-five~~thirty-two restaurants included in the same store sales base at the end of the quarter. Additionally, net revenues were reduced by ~~$2,000~~$88,000 in lower franchise royalties and license fees compared to the prior-year ~~quarter.~~quarter primarily due to the temporary closure of the Charlotte Airport licensee. Franchise revenues in the current and prior year quarters ~~each~~ include franchisee advertising contributions of ~~$4,000.~~$3,000 and $4,000, respectively.

1620

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Good Times restaurant sales increased ~~$883,000~~$1,175,000 to ~~$7,780,000~~$9,275,000 for the quarter ended ~~December 31, 2019~~June 30, 2020 from ~~$6,897,000~~$8,100,000 for the quarter ended ~~December~~June 25, ~~2018.~~2019. Good Times same store restaurant sales increased ~~5.8%~~11.9% during the quarter ended ~~December 31, 2019~~June 30, 2020 compared to the same prior-year quarter, due to improved customer traffic in May and ~~benefitted from an extra operating week which we estimate contributed approximately $460,000.The~~June as a result of increased preference for drive-thru service. One restaurant that was closed for remodeling in the prior year quarter was not included in the same store sales group. The average menu price increase for the quarter ended ~~December 31, 2019~~June 30, 2020 over the same prior-year quarter was approximately ~~5.7%~~4.9%. Franchise revenues ~~increased $5,000~~decreased $14,000 for the quarter ended ~~December 31, 2019,~~June 30, 2020, compared to the same prior year period. Franchise revenues for the current and prior year quarters include franchisee advertising contributions of ~~$55,000~~$64,000 and ~~$63,000,~~$87,000, respectively.

Restaurant Operating Costs

Food and Packaging Costs. Food and packaging costs for the quarter ended ~~December 31, 2019 increased $1,509,000~~June 30, 2020 decreased $1,805,000 to ~~$9,032,000 (29.5%~~$6,724,000 (27.8% of restaurant sales) from ~~$7,523,000 (29.9%~~$8,529,000 (29.2% of restaurant sales) for the quarter ended ~~December~~June 25, ~~2018.~~2019.

Bad Daddy’s food and packaging costs were ~~$6,618,000 (29.0%~~$3,932,000 (26.4% of restaurant sales) for the quarter ended ~~December 31, 2019, up~~June 30, 2020, down from ~~$5,269,000 (28.9%~~$6,063,000 (28.8% of restaurant sales) for the quarter ended ~~December~~June 25, ~~2018.~~2019. This ~~increase~~decrease is primarily ~~due~~attributable to ~~a greater number of operating restaurants~~lower restaurant sales during the current quarter versus the same quarter in the prior year. The ~~increase~~decrease as a percent of sales is attributable to menu mix shift from a limited menu during the ongoing COVID-19 pandemic, improved cost on soft beverage because refills are not available on off-premise sales, reduced discounting due to ~~purchase price increases~~the reduction in ~~all of~~on-premises sales, and increased pricing charged on sales through third-party delivery services, typically at a 10% to 20% premium to purchases made in-store or through our ~~primary proteins, mostly offset by~~online ordering system. Purchase prices generally increased on beef and bacon but generally decreased on chicken, on a year-over-year ~~increases in menu prices.~~basis.

Good Times food and packaging costs were ~~$2,414,000 (31.0%~~$2,792,000 (30.1% of restaurant sales) for the quarter ended ~~December 31, 2019,~~June 30, 2020, up from ~~$2,254,000 (32.7%~~$2,466,000 (30.4% of restaurant sales) for the quarter ended ~~December~~June 25, ~~2018.~~2019. This decrease as a percent of sales is due primarily to the impact of higher menu pricing and 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 ~~December 31, 2019 increased $2,266,000~~June 30, 2020 decreased $3,288,000 to ~~$11,819,000 (38.6%~~$7,389,000 (30.5% of restaurant sales) from ~~$9,553,000 (38.0%~~$10,677,000 (36.6% of restaurant sales) for the quarter ended ~~December~~June 25, ~~2018.~~2019.

Bad Daddy’s payroll and other employee benefit costs were ~~$8,841,000 (38.8%~~$4,780,000 (32.1% of restaurant sales) for the quarter ended ~~December 31, 2019 up~~June 30, 2020 down from ~~$6,982,000 (38.3%~~$7,851,000 (37.2% of restaurant sales) in the same prior year period. The ~~$1,859,000~~$3,071,000 decrease is primarily attributable to lower restaurant sales during the current quarter versus the same quarter in the prior year. As a percent of sales, payroll and employee benefits costs decreased by 5.1% primarily attributable to staffing reductions associated with the closure of our dining rooms for much of the quarter as well as reductions in management staffing.

Good Times payroll and other employee benefit costs were $2,609,000 (28.1% of restaurant sales) in the quarter ended June 30, 2020, down from $2,826,000 (34.9% of restaurant sales) in the same prior-year period. The $216,000 decrease was partially attributable to labor saving initiatives implemented during the current fiscal quarter as well as labor efficiencies gained though higher average menu pricing. As a percent of sales, payroll and employee benefits costs decreased by 6.8% in the quarter ended June 30, 2020 compared to the same prior year period. This decrease is primarily attributable to the leveraging impact of the significant sales increases as well as staffing reductions in late March and early April of 2020 as we entered the pandemic. The average wage paid to our employees increased approximately 1.1% in the quarter ended June 30, 2020 compared to the same prior year period.

Occupancy Costs. Occupancy costs for the quarter ended June 30, 2020 decreased $2,000 to $2,089,000 (8.6% of restaurant sales) from $2,091,000 (7.2% of restaurant sales) for the quarter ended June 25, 2019.

Bad Daddy’s occupancy costs were $1,486,000 (10.0% of restaurant sales) for the quarter ended June 30, 2020 up from $1,391,000 (6.6% of restaurant sales) in the same prior year period. The $95,000 increase was primarily attributable to the four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020, offset by rent abatements of approximately $85,000 granted by various landlords due to the COVID-19 pandemic. The increase as a percentage of sales was due to general increases in our operating lease costs as well as the deleveraging effect of lower restaurant sales.

Good Times occupancy costs were $603,000 (6.5% of restaurant sales) in the quarter ended ~~December 31,~~June 30, 2020, down from $700,000 (8.6% of restaurant sales) in the same prior year period. The $97,000 decrease was primarily attributable to cash rent abatements of approximately $69,000 granted by various landlords due to the COVID-19 pandemic, as well as other decreases in our operating lease costs and property taxes.

Other Operating Costs. Other operating costs for the quarter ended June 30, 2020, increased $94,000 to $3,164,000 (13.1% of restaurant sales) from $3,070,000 (10.5% of restaurant sales) for the quarter ended June 25, 2019.

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Bad Daddy’s other operating costs were $2,419,000 (16.2% of restaurant sales) for the quarter ended June 30, 2020 up from $2,396,000 (11.4% of restaurant sales) in the same prior year period. The $23,000 increase was partially attributable to the four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020. Other restaurant operating costs were significantly reduced due to the large decrease in sales compared to the prior year quarter, however, the decrease was mostly offset by a $558,000 increase in commissions paid to delivery service providers in the current year compared to the prior year. The percentage increase was primarily attributable to the deleveraging impact of lower overall sales and a significant shift in delivery sales as a percentage of overall sales, as customers migrated to delivery during the pandemic and dining rooms were generally closed.

Good Times other operating costs were $745,000 (8.0% of restaurant sales) in the quarter ended June 30, 2020, up from $674,000 (8.3% of restaurant sales) in the same prior year period. The increase was primarily attributable to an approximate $87,000 increase in commissions paid to delivery service providers offset by decreases in other general restaurant supplies and expenses.

New Store Preopening Costs. In the quarter ended June 30, 2020, we incurred $31,000 of preopening costs compared to $129,000 for the quarter ended June 25, 2019. All of the preopening costs are related to our Bad Daddy’s restaurants.

Preopening costs in the current quarter are primarily attributable to $24,000 of non-cash operating lease costs associated with two Bad Daddy’s restaurants where leases have been previously executed. In the prior-year period, pre-opening costs are related to the one Bad Daddy’s restaurant opened during the second fiscal quarter of 2019 and two that opened during the fourth quarter of fiscal 2019. Preopening costs typically occur over a period of approximately five months although as a result of the pandemic we expect to incur pre-opening costs for an extended period of time associated with these two future Bad Daddy’s restaurants. Although the exact timing varies by location, we typically spend approximately $275,000 to $350,000 per location, though these amounts may not accurately reflect preopening costs to be incurred with these two locations.

Depreciation and Amortization Costs. Depreciation and amortization costs for the quarter ended June 30, 2020, decreased $121,000 to $983,000 from $1,104,000 in the quarter ended June 25, 2019.

Bad Daddy’s depreciation and amortization costs for the quarter ended June 30, 2020, decreased $93,000 to $770,000 from $863,000 in the quarter ended June 25, 2019. This decrease was primarily attributable to reduced depreciation resulting from asset impairment charges recorded in the fourth quarter of fiscal 2019 and the second quarter of fiscal 2020, partially offset by increases due to the four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020.There were four more Bad Daddy’s restaurants open at the end of the current fiscal quarter compared to the prior year fiscal quarter.

Good Times depreciation and amortization costs for the quarter ended June 30, 2020, decreased $28,000 to $213,000 from $241,000 in the quarter ended June 25, 2019.

General and Administrative Costs. General and administrative costs for the quarter ended June 30, 2020, decreased $374,000 to $1,689,000 (6.9% of total revenue) from $2,063,000 (7.0%) of total revenues) for the quarter ended June 25, 2019.

The $374,000 decrease in general and administrative expenses in the quarter ended June 30, 2020 is primarily attributable to:

Decrease in training and recruiting costs of $161,000

Increase in administrative related payroll and benefit costs of $15,000

Decrease in costs associated with district management of $144,000 primarily related to reduced district management for our east coast Bad Daddy’s markets

Decrease of $36,000 in incentive stock compensation costs

Decrease of $20,000 related to travel and entertainment costs

Net decreases in all other expenses of $28,000

For the balance of the fiscal year, we expect general and administrative costs to continue to decline from fiscal 2019 to fiscal 2020 as we focus on reducing turnover and associated training costs.

Advertising Costs. Advertising costs for the quarter ended June 30, 2020, decreased $253,000 to $515,000 (2.1% of total revenue) from $659,000 (2.2% of total revenue) for the quarter ended June 25, 2019.

Bad Daddy’s advertising costs were $142,000 (1.1% of total revenue) in the quarter ended June 30, 2020 compared to $212,000 (1.1% of total revenue) in the same prior year period. The decrease is primarily due to lower sales in the current quarter versus the same prior year quarter. The current and prior year quarters include advertising costs of $3,000 and $4,000, respectively, of costs associated with franchise advertising contributions.

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

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Good Times advertising costs were $373,000 (4.0% of total revenue) in the quarter ended June 30, 2020 compared to $447,000 (5.5% of total revenue) in the same prior year period. This $74,000 decline is due primarily to reduced contributions made to the regional advertising cooperative. The current and prior year quarters include advertising costs of $64,000 and $87,000, respectively, of costs associated with franchise advertising contributions.

Good Times advertising costs consists primarily of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales which are used to provide television and radio advertising, social media and on-site and point-of-purchase. The percentage contribution paid to the regional advertising cooperative was reduced at the start of the current fiscal year associated with a change in expected media mix. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues. As a percentage of total revenue, we expect advertising costs to remain relatively stable at approximately 4.0% of total revenue for the Good Times segment.

Franchise Costs. Franchise costs were $6,000 and $8,000 for the quarters ended June 30, 2020 and June 25, 2019, respectively. The costs are primarily related to the Good Times franchised restaurants. We currently have minimal direct costs associated with maintaining our franchise systems as those employees overseeing franchisee relations primarily perform responsibilities associated with company operations

Gain/Loss on Restaurant Asset Disposals. The gain on restaurant asset disposals for the quarter ended June 30, 2020 was $8,000 compared to a loss on restaurant asset disposals of $44,000 for the quarter ended June 25, 2019.

The gain in the current year is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The loss in the prior year quarter is primarily associated with the write down of assets no longer in use, offset by deferred gains on previous sale lease-back transactions on two Good Times restaurants.

Impairment Costs: Impairment costs were $932,000 and $0 for the quarters ended June 30, 2020 and June 25, 2019, respectively. The costs in the current quarter are related to one Bad Daddy’s restaurants’ assets that were impaired.

Income from Operations. The income from operations was $843,000 in the quarter ended June 30, 2020 compared to $1,076,000 in the quarter ended June 25, 2019.

The change in the income/loss from operations for the quarter ended June 30, 2020 is due primarily due to matters discussed in the "Net Revenues,” "Restaurant Operating Costs," "General and Administrative Costs," “Advertising Costs” and “Asset Impairment Costs” sections above.

Net Income. Net income was $641,000 for the quarter ended June 30, 2020 compared to $873,000 in the quarter ended June 25, 2019.

The change from the quarter ended June 30, 2020 to the quarter ended June 25, 2019 was primarily attributable to the matters discussed in the "Net Revenues," "Restaurant Operating Costs," "General and Administrative Costs," “Advertising Costs” and “Asset Impairment Costs” sections above.

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

For the quarter ended June 30, 2020, the income attributable to non-controlling interests was $352,000 compared to $333,000 for the quarter ended June 25, 2019.

$74,000 of the current quarter’s income is attributable to the BDI joint-venture restaurants, compared to $186,000 in the same prior year period. This $112,000 decrease is primarily due to reduced restaurant level profitability in the current fiscal quarter. $278,000 of the current quarter’s income is attributable to the Good Times joint-venture restaurants, compared to $147,000 in the same prior year period.

Fiscal three quarters ended June 30, 2020 compared to the fiscal three quarters ended June 25, 2019:

Net Revenues. Net revenues for the three quarters ended June 30, 2020 decreased $629,000 or 0.8% to $81,353,000 from $81,982,000 for the three quarters ended June 25, 2019. Bad Daddy’s concept revenues decreased $2,797,000 while our Good Times concept revenues increased $2,168,000.

Bad Daddy’s restaurant sales decreased $2,686,000 to $57,028,000 for the three quarters ended June 30, 2020 from $59,714,000 for the three quarters ended June 25, 2019. Sales were positively impacted by four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter of 2020 and the impact of the 53^rd week of the fiscal year, offset by the negative impact of our dining room closures due to the COVID-19 pandemic. We estimate the impact of the extra week of sales in the first fiscal quarter of 2020 to be approximately $2,015,000. Bad Daddy’s same store restaurant sales decreased 19.6% during the three quarters ended June 30, 2020 compared to the same prior-year three quarters, substantially driven by decreases between March and May when dining rooms were closed, and to a lesser extend in June when dining rooms were open but at reduced capacity. Bad Daddy’s restaurants are included in same store sales after they have been open a full eighteen months. The average menu price increase for the three quarters ended June 30, 2020 over the same prior-year three quarters was approximately 2.9%. There were thirty-two restaurants included in the same store sales base at the end of the quarter. Additionally, net revenues were reduced by $110,000 in lower franchise royalties and license fees compared to the prior-year three quarters, primarily related to the Charlotte Airport licensee. Franchise revenues in the current and prior year quarters include franchisee advertising contributions of $9,000 and $11,000, respectively.

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Good Times restaurant sales increased $2,186,000 to $23,753,000 for the three quarters ended June 30, 2020 from $21,567,000 for the three quarters ended June 25, 2019. Good Times same store restaurant sales increased 7.2% during the three quarters ended June 30, 2020 compared to the same prior-year three quarters and benefitted from an extra operating week in the first fiscal quarter of 2020 which we estimate contributed approximately $460,000. The average menu price increase for the three quarters ended June 30, 2020 over the same prior-year three quarters was approximately 5.8%. Franchise revenues decreased $18,000 for the three quarters ended June 30, 2020, compared to the same prior year period. Franchise revenues for the current and prior year quarters include franchisee advertising contributions of $167,000 and $212,000, respectively.

Restaurant Operating Costs

Food and Packaging Costs. Food and packaging costs for the three quarters ended June 30, 2020 decreased $579,000 to $23,376,000 (28.9% of restaurant sales) from $23,955,000 (29.5% of restaurant sales) for the three quarters ended June 25, 2019.

Bad Daddy’s food and packaging costs were $16,108,000 (28.2% of restaurant sales) for the three quarters ended June 30, 2020, down from $17,136,000 (28.7% of restaurant sales) for the three quarters ended June 25, 2019. This decrease is primarily attributable to lower restaurant sales during the current three quarters versus the same three quarters in the prior year. The decrease as a percent of sales is attributable to menu mix shift from a limited menu during the ongoing COVID-19 pandemic, improved cost on soft beverage because refills are not available on off-premise sales, reduced discounting due to the reduction in on-premises sales, and increased pricing charged on sales through third-party delivery services, typically at a 10% to 20% premium to purchases made in-store or through our online ordering system. Purchase prices generally increased on beef and bacon throughout the three quarters, but generally decreased on chicken, on a year-over-year basis.

Good Times food and packaging costs were $7,268,000 (30.6% of restaurant sales) for the three quarters ended June 30, 2020, up from $6,819,000 (31.6% of restaurant sales) for the three quarters ended June 25, 2019, the result of increased sales. This decrease as a percent of sales is due primarily to the impact of higher menu pricing and menu engineering, which offset purchase price increases on our primary ingredients.

Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the three quarters ended June 30, 2020 decreased $1,376,000 to $29,082,000 (36.0% of restaurant sales) from $30,458,000 (37.5% of restaurant sales) for the three quarters ended June 25, 2019.

Bad Daddy’s payroll and other employee benefit costs were $20,973,000 (36.8% of restaurant sales) for the three quarters ended June 30, 2020 down from $22,502,000 (37.7% of restaurant sales) in the same prior year period. The $1,529,000 decrease is the result of lower restaurant sales during the current three quarters versus the same three quarters in the prior year, primarily attributable to staffing reductions associated with the closure of our dining rooms for much of the third quarter as well as reductions in management staffing. As a percent of sales, payroll and employee benefits costs ~~increased~~decreased by ~~0.5%~~0.9%, ~~as increased wages, particularly for kitchen workers, increased in all states due~~compared to ~~a competitive market for workers, and due to statutory wage increases for front-of-house employees in Colorado, all~~the same prior year period, primarily driven by reduced overall staffing during the third fiscal quarter of ~~which combined exceeded the impact of our year-over-year menu price increases.~~2020.

Good Times payroll and other employee benefit costs were ~~$2,978,000 (38.3%~~$8,109,000 (34.1% of restaurant sales) in the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020, up from ~~$2,571,000 (37.3%~~$7,956,000 (36.9% of restaurant sales) in the same prior-year period. The ~~$407,000~~$153,000 increase was ~~partially~~primarily attributable to the increase in same store sales as well as an increase to the average wage paid to our employees. As a percent of sales, payroll and employee benefits costs ~~increased~~decreased by ~~1.0%~~2.8%, ~~primarily related~~compared to the same prior year period, primarily attributable to the leveraging impact of the significant sales increases in the third fiscal quarter of 2020. The average wage paid to our employees ~~which~~ increased approximately ~~9.5%~~6.7% in the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 compared to the same prior year period. This average wage increase is attributable to a very competitive labor market in Colorado and statutory increases in the minimum wage ~~rate.~~rate, particularly during the first two quarters of the year.

Occupancy Costs. Occupancy costs for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 increased ~~$473,000~~$518,000 to ~~$2,438,000 (8.0%~~$6,739,000 (8.3% of restaurant sales) from ~~$1,965,000 (7.8%~~$6,221,000 (7.7% of restaurant sales) for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

Bad Daddy’s occupancy costs were ~~$1,644,000 (7.2%~~$4,600,000 (8.1% of restaurant sales) for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 up from ~~$1,277,000 (7.0%~~$4,022,000 (6.7% of restaurant sales) in the same prior year period. The ~~$367,000~~$578,000 increase was primarily attributable to the four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter ~~ended December 31, 2019.~~of 2020, offset by rent abatements of approximately $85,000 granted by various landlords in the third fiscal quarter of 2020 due to the COVID-19 pandemic The increase as a percentage of sales was due to general increases in our operating lease ~~costs.~~costs as well as the deleveraging effect of lower restaurant sales.

Good Times occupancy costs were ~~$794,000 (10.2%~~$2,139,000 (9.0% of restaurant sales) in the ~~quarter~~three quarters ended ~~December 31, 2019, up~~June 30, 2020, down from ~~$688,000 (10.0%~~$2,199,000 (10.2% of restaurant sales) in the same prior year period. The ~~$106,000 increase~~decrease was primarily attributable to ~~an $84,000 increase~~rent abatements of approximately $69,000 granted by various landlords in the third fiscal quarter of 2020 due to the COVID-19 pandemic, as well as other decreases in our operating lease ~~costs.~~costs and property taxes.

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Other Operating Costs. Other operating costs for the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020, increased ~~$606,000~~$965,000 to ~~$3,276,000 (10.7%~~$9,673,000 (12.0% of restaurant sales) from ~~$2,670,000 (10.6%~~$8,738,000 (10.7% of restaurant sales) for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

Bad Daddy’s other operating costs were ~~$2,565,000 (11.2%~~$7,549,000 (13.2% of restaurant sales) for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 up from ~~$2,041,000 (11.2%~~$6,770,000 (11.3% of restaurant sales) in the same prior year period. The ~~$524,000~~$779,000 increase was ~~primarily~~partially attributable to the four new restaurants opened in fiscal 2019 and two new restaurants opened in the first fiscal quarter ~~ended December 31, 2019.~~of 2020 as well as an increase of $826,000 in commissions paid to delivery service providers. The percentage increase was primarily attributable to ~~approximately $131,000~~the deleveraging impact of ~~increased commissions paid~~lower overall sales and the a significant shift in delivery sales as a percentage of overall sales, as customers migrated to delivery ~~service providers in~~during the ~~current year compared to~~first two months of the ~~prior year, offset by decreases in other general restaurant supplies~~COVID-19 pandemic and ~~expenses.~~dining rooms were generally closed.

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Good Times other operating costs were ~~$711,000 (9.1%~~$2,124,000 (8.9% of restaurant sales) in the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020, up from ~~$629,000 (9.1%~~$1,938,000 (9.0% of restaurant sales) in the same prior year period. The increase was primarily attributable to an approximate ~~$40,000~~$182,000 increase in commissions paid to delivery service ~~providers offset by decreases in other general restaurant supplies and expenses.~~providers.

New Store Preopening Costs. In the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020, we incurred ~~$802,000~~$992,000 of preopening costs compared to ~~$627,000~~$949,000 for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019. All of the preopening costs are related to our Bad Daddy’s restaurants.

Preopening costs in the current ~~quarter~~three quarters are primarily attributable to four restaurants: two that opened late during the fourth quarter of fiscal 2019, and two restaurants that opened during the first fiscal quarter of 2020. In addition, the current ~~quarter.~~three quarters includes approximately $132,000 of non-cash operating lease costs associated with two future Bad Daddy’s restaurants, In the prior-year period, pre-opening costs are related to the one Bad Daddy’s restaurant opened during the ~~first~~second fiscal quarter of ~~2019, one that opened during the second quarter of fiscal~~ 2019, and two that opened during the fourth quarter of fiscal 2019. 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 ~~quarter~~three quarters ended ~~December 31, 2019, increased $45,000~~June 30, 2020, decreased $52,000 to $3,175,000 from ~~$1,034,000~~$3,227,000 in the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018 to $1,079,000.~~2019.

Bad Daddy’s depreciation and amortization costs ~~increased $51,000~~for the three quarters ended June 30, 2020, decreased $7,000 to $2,535,000 from ~~$816,000~~$2,542,000 in the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018~~2019. This decrease was attributable to ~~$867,000~~reduced depreciation resulting from asset impairment charges recorded in the fourth quarter ~~ended December 31, 2019. This increase was primarily attributable to~~of fiscal 2019 and the second quarter of fiscal 2020, offset by the four new restaurants opened in fiscal 2019 and two new restaurants opened in the ~~quarter ended December 31, 2019, partially offset by the reduced depreciation resulting from asset impairment charges recorded in the fourth~~first fiscal quarter of ~~fiscal 2019.~~2020.. There were ~~five~~four more Bad Daddy’s restaurants open at the end of the current fiscal quarter compared to the prior year fiscal quarter.

Good Times depreciation and amortization costs for the three quarters ended June 30, 2020, decreased ~~$6,000~~$45,000 to $640,000 from ~~$218,000~~$685,000 in the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018 to $212,000 in the quarter ended December 31,~~ 2019.

General and Administrative Costs. General and administrative costs for the ~~quarter~~three quarters ended ~~December 31, 2019, increased $239,000~~June 30, 2020, decreased $553,000 to ~~$2,213,000 (7.2%~~$5,538,000 (6.8% of total revenue) from ~~$$1,974,000 (7.8%~~$6,091,000 (7.4%) of total revenues) for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

The ~~$239,000 increase~~$553,000 decrease in general and administrative expenses in the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 is primarily attributable to:

~~Increase~~Decrease in training and recruiting costs of ~~$55,000~~$219,000

~~Increase~~Decrease in ~~expected employee medical claims~~administrative related payroll and benefit costs of ~~$50,000~~$144,000

~~Increase~~Decrease in costs associated with district management of ~~$72,000, of which approximately $20,000 is related to the extra operating week in the current quarter and the remainder is~~$183,000 primarily related to ~~additional~~reduced district management for our east coast Bad Daddy’s markets

Increase in professional fees of ~~$139,000~~$142,000

Decrease of ~~$37,000~~$108,000 in incentive stock compensation costs

Net decreases in all other expenses of ~~$40,000~~$41,000

For the balance of the fiscal year, we expect general and administrative costs to continue to ~~be stable or~~ decline slightly from fiscal 2019 to fiscal 2020 as we focus on reducing turnover and associated training costs.

Advertising Costs. Advertising costs for the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020, decreased ~~$77,000~~$253,000 to ~~$546,000 (1.8%~~$1,571,000 (1.9% of total revenue) from ~~$623,000 (2.5%~~$1,824,000 (2.2% of total revenue) for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

Bad Daddy’s advertising costs were ~~$235,000 (1.0%~~$617,000 (1.1% of total revenue) in the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 compared to ~~$251,000 (1.4%~~$654,000 (1.1% of total revenue) in the same prior year period. The ~~$16,000~~decrease is primarily due to lower sales in the current three quarters versus the same prior year period, the decrease was ~~primarily attributable to rolling over a media buy~~offset by $52,000 in costs incurred in the ~~prior year~~second fiscal quarter ~~ending December 25, 2018~~related to a local radio advertising campaign 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 in fiscal 2019 and two new restaurants opened in the quarter ended December 31, 2019.Charlotte, North Carolina area The current and prior year three quarters include advertising costs of ~~$4,000~~$9,000 and $11,000, respectively, of costs associated with franchise advertising contributions.

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

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Good Times advertising costs were ~~$311,000~~$954,000 (3.9% of total revenue) in the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 compared to ~~$372,000~~$1,170,000 (5.3% of total revenue) in the same prior year period. This ~~$61,000~~$216,000 decline is due primarily to reduced contributions made to the regional advertising cooperative. The current and prior year quarters include advertising costs of ~~$55,000~~$167,000 and ~~$63,000,~~$212,000, respectively, of costs associated with franchise advertising contributions.

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Franchise Costs. Franchise costs were $0$14,000 and ~~$7,000~~$31,000 for the three quarters ended ~~December 31,~~June 30, 2020 and June 25, 2019, ~~and 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

~~Gain~~Gain/Loss on Restaurant Asset Disposals. The gain on restaurant asset disposals for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 was ~~$19,000~~$36,000 compared to a ~~gain~~loss of ~~$30,000~~$5,000 in the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

$~~9,000~~28,000 of the gain in the current ~~and prior years~~year is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The additional gain of ~~$10,000~~$8,000 in the current year is related to the sale of miscellaneous restaurant equipment. The ~~additional gain of $21,000~~loss in the prior year quarter is primarily associated with the write down of assets no longer in use, offset by deferred gains on previous sale lease-back transactions on two Good Times restaurants.

Impairment Costs: Impairment costs were $15,291,000 and $0 for the three quarters ended June 30, 2020 and June 25, 2019, respectively. $5,291,000 of the costs in the current three quarters are related to ~~insurance claim reimbursements where~~six Bad Daddy’s restaurants’ assets that were ~~destroyed.~~impaired and $10,000,000 is attributable to an impairment of goodwill related to our Bad Daddy’s reporting unit.

Loss from Operations. The loss from operations was ~~$372,000~~$14,062,000 in the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 compared to a loss of ~~$581,000~~$513,000 in the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

The change in the loss from operations for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 is due primarily due to matters discussed in the "Net Revenues,” "Restaurant Operating Costs," "General and Administrative Costs," “Advertising Costs” and ~~“Advertising~~“Asset Impairment Costs” sections above.

Net Loss. The net loss was ~~$599,000~~$14,700,000 for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 compared to a net loss of ~~$742,000~~$49,000 in the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

The change from the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 to the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018~~2019 was primarily attributable to the matters discussed in the "Net Revenues," "Restaurant Operating Costs," "General and Administrative Costs," “Advertising Costs” and ~~“Advertising~~“Asset Impairment Costs” sections above as well as an increase in net interest expense of ~~$67,000~~$77,000 for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 compared to the same prior year period.

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

For the ~~quarter~~three quarters ended ~~December 31, 2019,~~June 30, 2020, the income attributable to non-controlling interests was ~~$212,000~~$738,000 compared to ~~$309,000~~$912,000 for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019.

$~~133,000~~319,000 of the current ~~quarter’s~~three quarters’ income is attributable to the BDI joint-venture restaurants, compared to ~~$250,000~~$671,000 in the same prior year period. This ~~$117,000~~$352,000 decrease is primarily due to the elimination of non-controlling interests beginning in the second fiscal quarter of 2019 associated with the repurchase of interests in the three Raleigh area ~~restaurants. $79,000~~restaurants as well as reduced restaurant level profitability in the third fiscal quarter of 2020. $419,000 of the current ~~quarter’s~~three quarters’ income is attributable to the Good Times joint-venture restaurants, compared to ~~$59,000~~$241,000 in the same prior year period. This $178,000 increase is primarily due to increased restaurant level profitability in the third fiscal quarter of 2020.

Adjusted EBITDA

EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.

Adjusted EBITDA is defined as EBITDA plus non-cash stock-based compensation expense, preopening expense, non-recurring acquisition costs, GAAP rent in excess of cash rent, and non-cash disposal of assets. Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by or presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses EBITDA and Adjusted EBITDA (i) as a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.

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We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's financial measures with other fast casual restaurants, which may present similar non-GAAP financial measures to investors. In addition, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.

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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.

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

Quarter Ended
December 31, 2019 December 25, 2018
Adjusted EBITDA:
Net loss, as reported $ (811 ) $ (1,051 )
Depreciation and amortization¹ 1,069 993
Interest expense, net 227 160
EBITDA 485 102
Preopening expense 801 605
Non-cash stock-based compensation 75 112
Non-recurring severance cost 41 -
GAAP rent-cash cash difference 121 (43 )
Non-cash gain on disposal of asset (9 ) (9 )
Adjusted EBITDA $ 1,514 $ 767

	Quarter Ended						Year-to-Date
	June 30, 2020 (13 Weeks)			June 25, 2019 (13 Weeks)			June 30, 2020 (40 Weeks)			June 25, 2019 (39 Weeks)
Adjusted EBITDA:
Net income (loss), as reported	$	289		$	540		$	(15,438	)	$	(961	)
Depreciation and amortization		968			1,096			3,140			3,157
Interest expense, net		202			202			638			561
EBITDA		1,459			1,838			(11,660	)		2,757
Preopening expense		31			128			992			928
Non-cash stock-based compensation		74			110			223			331
Non-recurring severance costs		-			-			41			-
GAAP rent-cash cash difference		(95	)		(44	)		(118	)		(50	)
Gain (loss) on disposal of assets		(8	)		44			(36	)		5
Asset impairment charge		932			-			15,291			-
Adjusted EBITDA	$	2,393		$	2,076		$	4,733		$	3,971

Liquidity and Capital Resources

Cash and Working Capital

As of ~~December 31, 2019,~~June 30, 2020, we had a working capital deficit of ~~$7,753,000.~~$1,738,000, Our working capital position additionally benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within a few days of the related sale, and we typically have two to four weeks to pay our vendors. ~~The working capital deficit may increase when new Bad Daddy’s and Good Times restaurants are opened.~~ We believe ~~that with our ability to access the Cadence Bank credit facility in addition to cash flow generated from our existing restaurants,~~ that we will have sufficient capital to meet our working capital, long term debt obligations and recurring capital expenditure needs infor the remainder of fiscal ~~2020.~~2020 and 2021, although if we are required to shut down dining rooms or full restaurants due to COVID-19-driven government restrictions, we may need to seek additional sources of liquidity. As of ~~December 31, 2019,~~June 30, 2020, we had no$354,000 in commitments outstanding related to construction contracts for a Bad Daddy’s ~~restaurants currently~~restaurant that was under ~~development.~~construction at the outset of the pandemic, but which has been halted due to the uncertainty created by COVID-19.

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

Financing

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~~Financing~~Cadence Credit Facility

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

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 30, 2020, the Company was in compliance with all covenants under the Cadence Credit Facility.

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Paycheck Protection Program Loans

On May 7, 2020, Good Times Restaurants Inc., and three of its wholly-owned subsidiaries, BDI, Drive Thru, and BDC (each a “Borrower”), entered into unsecured loans in the aggregate principal amount of $11,645,000 (the “Loans”) with Cadence Bank, N.A. (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP”), which is sponsored by the Small Business Administration (the “SBA”). The PPP is part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

Capital Expenditures

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

Cash Flows

Net cash provided by operating activities was ~~$999,000~~$4,388,000 for the ~~quarter~~three quarters ended ~~December 31, 2019.~~June 30, 2020. The net cash provided by operating activities for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 was the result of a net loss of ~~$599,000~~$14,700,000 as well as cash and non-cash reconciling items totaling ~~$1,598,000~~$19,088,000 (these reconciling items are comprised of 1) depreciation and amortization of general assets of ~~$1,126,000,~~$3,311,000, 2) amortization of operating lease assets of ~~$1,097,000,~~$3,100,000, 3) stock-based compensation expense of ~~$74,000,~~$223,000, 4) aimpairment costs of 15,291,000 5) an increase in receivables and other assets of ~~$610,000, 5) a decrease~~$840,000, 6) an increase in deferred liabilities and accrued expenses of ~~$632,000~~$346,000 , ~~6) a decrease~~7) an increase in accounts payable of ~~$99,000~~$47,000 and 7)8) a net increase in amounts related to our operating leases of ~~$613,000.~~$2,392,000.

Net cash ~~used in~~provided by operating activities was ~~$386,000~~$4,402,000 for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018.~~2019. The net cash ~~used in~~provided by operating activities for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018~~2019 was the result of a net loss of ~~$742,000~~$49,000 as well as cash and non-cash reconciling items totaling ~~$356,000~~$4,451,000 (these reconciling items are comprised of 1) depreciation and amortization of ~~$1,094,000,~~$3,417,000, 2) accretion of deferred rent of ~~$126,000,~~$429,000, 3) amortization of lease incentive obligations of ~~$121,000,~~$374,000, 4) stock-based compensation expense of ~~$112,000,~~$331,000, 5) a decrease in receivables and other assets of ~~$165,000,~~$1,381,000, 6) an increase in deferred liabilities related to tenant allowances of ~~$147,000,~~$368,000, 7) an increase in accounts payable of ~~$43,000,~~$367,000, 8) an increase in prepaids and other assets of $356,000, 9) a decrease in accrued liabilities of ~~$1,154,000~~$1,023,000 and 9)10) a net decrease in other operating assets and liabilities of ~~$56,000)~~$89,000).

Net cash used in investing activities for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 was ~~$1,683,000~~$2,305,000 which primarily reflects the purchases of property and equipment of ~~$1,613,000~~$2,294,000, proceeds from the sale of fixed assets of $55,000 and the purchase of treasury stock of $75,000. Purchases of property and equipment is comprised of the following:

$~~1,508,000~~2,065,000 in costs for the development of Bad Daddy’s locations

$~~69,000~~106,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants

$~~15,000~~90,000 for miscellaneous capital expenditures related to our Good Times restaurants

$~~21,000~~33,000 for miscellaneous capital expenditures related to our corporate office

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Net cash used in investing activities for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018~~2019 was ~~$2,915,000~~$7,700,000 which primarily reflects the purchases of property and equipment of ~~$2,918,000.~~$4,716,000 and the purchase of non-controlling interests of $3,009,000. Purchases of property and equipment is comprised primarily of the following:

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$~~2,374,000~~3,438,000 in costs for the development of Bad Daddy’s locations

$~~111,000~~290,000 for miscellaneous capital expenditures related to our Bad Daddy’s restaurants

$~~388,000~~705,000 for remodel and reimaging ~~remodeling and~~related to our Good Times restaurants

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

$~~45,000~~57,000 for miscellaneous capital expenditures ~~related to assets used by~~for our ~~Colorado maintenance team that provides services for both concepts~~corporate office

Net cash provided by financing activities for the ~~quarter~~three quarters ended ~~December 31, 2019~~June 30, 2020 was ~~$1,231,000,~~$7,837,000, which includes principal payments on notes payable and long-term debt of ~~$500,000,~~$8,250,000, borrowings on notes payable and long-term debt of ~~$2,000,000,~~$16,945,000, contributions from non-controlling interests of $22,000 and distributions to non-controlling interests of ~~$291,000.~~$880,000.

Net cash provided by financing activities for the ~~quarter~~three quarters ended ~~December~~June 25, ~~2018~~2019 was ~~$2,271,000,~~$2,440,000, which includes principal payments on notes payable and long-term debt of ~~$4,000,~~$2,480,000, borrowings on notes payable and long-term debt of ~~$2,750,000,~~$6,150,000, proceeds from the exercise of stock options of $3,000 and net distributions to non-controlling interests of ~~$478,000.~~$1,233,000.

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~~three quarters of fiscal 2020. The total menu increases taken at our Bad Daddy’s restaurants during fiscal 2019 were approximately 1.5% on average. We raised menu prices during the first ~~quarter~~three quarters of fiscal ~~2019~~2020 approximately 2.4%. Commodity prices have ~~increased since~~been elevated during fiscal 2020, including significantly higher-than-normal pricing during June and July 2020. Due to the ~~end~~impact of ~~fiscal 2019~~the COVID-19 pandemic, availability of ground beef and bacon has been constrained and prices for those commodities have been ~~elevated~~substantially more volatile than in recent history. Due to these factors, we are not able to predict the ~~first quarter~~impact of ~~fiscal 2020 compared to the first quarter of fiscal 2019. When combined with anticipated menu price increases, we expect Good Times’ and Bad Daddy’s’~~inflation on our food and packaging costs ~~to be relatively consistent or slightly elevated compared with~~for the ~~current quarter, as a percentage~~balance of ~~sales during~~ the ~~remainder of fiscal 2020.~~year.

Seasonality

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

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 4.

CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report on Form 10Q, the Company’s Chief Executive Officer ~~and Controller~~ (its principal executive officer and principal financial ~~officer, respectively) have~~officer) has concluded that the Company’s disclosure controls and procedures were effective as of ~~December 31, 2019.~~June 30, 2020.

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Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended ~~December 31, 2019~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting other than controls implemented to account under FASB ASU 2016-02, Leases (Topic 842).

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

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

The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic have significantly disrupted and will continue to disrupt our business, which has and could continue to materially affect our financial condition and operating results for an extended period of time.

The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic, as well as our responses to the outbreak, have significantly disrupted and will continue to disrupt our business. In the United States social distancing restrictions have been enacted and, in many areas, individuals are restricted from non-essential movements outside of their homes. With the reopening of all Bad Daddy’s Burger Bar dining rooms, we are operating under capacity restrictions for some time as social distancing protocols remain in place, and we are unable to determine at what point, if ever, capacity will be restored to pre-pandemic levels. Additionally, an outbreak or perceived outbreak of COVID-19 connected to one or more of our restaurants could cause negative publicity and cause customers to avoid our restaurants. We cannot predict how long the pandemic will last or whether it will reoccur, what additional restrictions may be enacted, or if individuals will be comfortable returning to our restaurants during or following social distancing protocols. Similarly, we cannot predict the effects the COVID-19 pandemic will have on the restaurant industry as a whole or the share of customer traffic to our restaurants compared to other restaurants. Any of these changes could materially adversely affect our financial performance.

Our restaurant operations could be further disrupted if any of our restaurant staff members is diagnosed with COVID-19, requiring the quarantine of some or all of a restaurant’s staff members and the temporary closure of the restaurant. If a significant percentage of our workforce is unable to work, due to COVID-19 illness, quarantine or other government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially materially adversely affecting our liquidity, financial condition or results of operations. Our suppliers could be similarly adversely impacted by the COVID-19 outbreak, and we could face shortages of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such supply interruptions.

In addition, while we have taken actions to manage our liquidity position in response to COVID-19, such as temporary reductions in management pay, temporary reductions in work force, extended vendor payment terms and receiving Paycheck Protection Program loans, we may need to seek additional sources of liquidity. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur in the future.

The full impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic, and reduced operations. The significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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.None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4.

MINE SAFETY DISCLOSURES

Not 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~~Amended and Restated Employment Agreement, dated ~~October 8, 2019~~April 6, 2020, between Ryan M. Zink and 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~~April 10, 2020 (File No. 000-18590) and incorporated herein by reference)
10.2	Consent and Forbearance Agreement, dated as of April 14, 2020 but effective March 31, 2020 by and among Good Times Restaurants Inc., each of its wholly-owned subsidiaries and Cadence Bank, N.A. (previously filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed April 20, 2020 (File No. 000-18590) and incorporated herein by reference)
10.3	Promissory Note, dated as of May 7, 2020, by Good Times Restaurants, Inc. in favor of Cadence Bank, NA (previously filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed May 12, 2020 (File No. 000-18590) and incorporated herein by reference)
10.4	Promissory Note, dated as of May 7, 2020, by Bad Daddy’s International, LLC. in favor of Cadence Bank, NA (previously filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed May 12, 2020 (File No. 000-18590) and incorporated herein by reference)
10.5	Promissory Note, dated as of May 7, 2020, by Good Times Drive-Thru Inc.in favor of Cadence Bank, NA (previously filed as Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed May 12, 2020 (File No. 000-18590) and incorporated herein by reference)
10.6	Promissory Note, dated as of May 7, 2020, by BD of Colorado, LLC. in favor of Cadence Bank, NA (previously filed as Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed May 12, 2020 (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

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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: ~~February~~August 14, 2020


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