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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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This Form 10-Q contains or incorporates
by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and the disclosure of risk factors in the Company’s Form 10-K for the fiscal year
ended September 29, 2020. 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:
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(I)
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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.
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(II)
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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.
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(II)
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We may be negatively impacted if we experience same store sales declines. Same
store sales comparisons will be dependent, among other things, on the success of our advertising and promotion of new and existing menu
items. No assurances can be given that such advertising and promotions will in fact be successful.
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We may also be negatively impacted by other factors
common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food,
paper, labor, health care, workers' compensation or energy; our ability to adequately staff our restaurants; 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 29, 2020.
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.
The global crisis resulting from the spread of
COVID-19 had a substantial impact on our restaurant operations for the two fiscal quarters ended March 30, 2021 and March 31, 2020.
During portions of the month of March 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. Additionally, our Good Times Burgers and Frozen Custard restaurants experienced reduced volumes during the month
of March 2020.
During portions of the month of November 2020
through early January 2021, all of the Company’s Bad Daddy’s Burger Bar restaurants in Colorado were open only for limited
outdoor dining, delivery and carry-out service, with indoor dining rooms closed by government orders. Beginning in early January 2021,
we began to re-open Colorado dining rooms at Bad Daddy’s, with limited occupancy, as local regulations allowed. Our dining rooms
in all other states in which Bad Daddy’s has operations were open during this time. Although certain dining rooms were open, all
were operating at some reduction of capacity throughout the quarter, whether driven by explicit capacity reductions under government orders,
or due to social distancing protocols that are either mandated by the same government orders, or which we abide by as under our own internal
protocols designed to maintain a safe foodservice environment, both for our employees and for our customers.
Our operating results substantially depend upon
our ability to drive traffic to our restaurants, and for our Bad Daddy’s Burger Bar restaurants, to serve guests in our dining rooms.
We cannot currently estimate the duration of the impact of the COVID-19 pandemic on our business; neither are we able to predict how the
pandemic will evolve nor how various government entities will respond to its evolution. Should additional dining room closures occur,
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. Furthermore, although certain vaccines that are currently
being administered may reduce the risk of further government restrictions, there is no guarantee that the vaccine will be effective in
eradicating the virus, additional mutations or variants of the virus may be resistant to any vaccine, and the length of the ongoing pandemic
may change consumer behavior such that potential customers may still choose to reduce or eliminate in-restaurant dining.
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 the 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.
Growth Strategies and Outlook.
We believe there are significant opportunities
to grow customer traffic and increase awareness of our brands. Prior to the COVID-19 pandemic, we reduced our development profile as we
sought to improve our financial position, and while we believe there are unit growth opportunities for both of our concepts, we are evaluating
that in-line with the impact of the pandemic on the restaurant industry. We expect to open two Bad Daddy’s restaurants during fiscal
2021.
Restaurant locations.
As of March 30, 2021, we operated, franchised
or licensed a total of thirty-nine Bad Daddy’s restaurants and thirty-two Good Times restaurants. The following table presents the
number of restaurants operating at the end of the second fiscal quarters of 2021 and 2020.
Company-Owned/Co-Developed/Joint-Venture:
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Bad Daddy’s
Burger Bar
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Good Times Burgers
& Frozen Custard
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Total
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2021
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2020
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2021
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2020
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2021
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|
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2020
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Alabama
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1
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|
|
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1
|
|
|
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-
|
|
|
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-
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|
|
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1
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|
|
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1
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Colorado
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|
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12
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|
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12
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|
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24
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|
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25
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36
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37
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Georgia
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4
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|
|
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4
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|
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-
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|
|
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-
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4
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4
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North Carolina
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14
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|
|
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14
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|
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-
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|
|
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-
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|
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14
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14
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Oklahoma
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|
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1
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|
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1
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|
|
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-
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|
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-
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|
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1
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|
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1
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South Carolina
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|
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3
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|
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3
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-
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-
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3
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3
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Tennessee
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|
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2
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|
|
|
2
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|
|
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-
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|
|
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-
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|
|
|
2
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|
|
|
2
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Total
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37
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37
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24
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|
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25
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61
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62
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Franchise/License:
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Bad Daddy’s
Burger Bar
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Good Times Burgers
& Frozen Custard
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Total
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2021
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2020
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2021
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2020
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|
|
2021
|
|
|
2020
|
|
Colorado
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|
|
-
|
|
|
|
-
|
|
|
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6
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|
|
|
6
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|
|
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6
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|
|
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6
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North Carolina
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|
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1
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|
|
|
1
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|
|
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-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
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South Carolina
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|
|
1
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|
|
|
1
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|
|
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-
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|
|
|
-
|
|
|
|
1
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|
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1
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Wyoming
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|
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-
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|
|
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-
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|
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2
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|
|
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2
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|
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2
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|
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2
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Total
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2
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2
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8
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8
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|
|
10
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|
|
10
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Results of Operations
Fiscal quarter ended March 30, 2021 compared
to fiscal quarter ended March 31, 2020:
Net Revenues. Net revenues for the
quarter ended March 30, 2021 increased $3,010,000 or 11.5% to $29,192,000 from $26,182,000 for the quarter ended March 31, 2020. Bad Daddy’s
concept revenues increased $1,659,000 while our Good Times concept revenues increased $1,351,000.
Bad Daddy’s restaurant sales increased $1,683,000
to $20,983,000 for the quarter ended March 30, 2021 from $19,300,000 for the quarter ended March 31, 2020. This includes sales from delivery
vendors of $4,466,000 for the quarter ended March 30, 2021, an increase of $3,047,000 from $1,419,000 during the quarter ended March 31,
2020. Sales were positively impacted by the reversal of COVID-19 dining room closures early in January 2021, and increased dining room
capacity throughout the quarter. During the last three weeks of the quarter ended March 31, 2020 all dining rooms were closed due to the
COVID-19 pandemic which significantly impacted restaurant sales. The average menu price increase for the quarter ended March 30, 2021
over the same prior-year quarter was approximately 3.2%.
Additionally, net revenues were reduced by $24,000
in lower franchise royalties and license fees compared to the prior-year quarter primarily due to COVID-19 related capacity restrictions
and reduced customer traffic at our airport licensee location. Franchise revenues in the current and prior year quarters include franchisee
advertising contributions of $4,000 and $3,000, respectively.
Good Times restaurant sales increased $1,314,000
to $8,012,000 for the quarter ended March 30, 2021 from $6,698,000 for the quarter ended March 31, 2020. The average menu price increase
for the quarter ended March 30, 2021 over the same prior-year quarter was approximately 4.5%. Franchise revenues increased $36,000 for
the quarter ended March 30, 2021, compared to the same prior year period. Franchise revenues for the current and prior year quarters include
franchisee advertising contributions of $60,000 and $48,000, respectively.
Same Store Sales
Sales store sales is a metric used in evaluating
the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are
calculated using all units open for at least eighteen full fiscal months, and use the comparable operating weeks from the prior year to
the current year quarter’s operating weeks.
Bad Daddy’s same store sales for Company-owned
restaurants increased 9.1% during the quarter ended March 30, 2021 compared to the same thirteen-week period ended March 31, 2020 in the
prior-year quarter, substantially driven by COVID-19 related capacity restrictions and dining room closures during the prior-year quarter.
There were thirty-three restaurants included in the same store sales base at the end of the quarter.
Good Times same store sales for Company-owned
restaurants increased 22.9% during the quarter ended March 30, 2021 compared to the same thirteen-week period ended March 31, 2020 in
the prior-year quarter, primarily due to improved customer traffic as a result of increased preference for drive-thru service during COVID-19
related restrictions. There were twenty-four restaurants included in the same store sales base at the end of the quarter.
Restaurant Operating Costs
Food and Packaging Costs. Food and
packaging costs for the quarter ended March 30, 2021 increased $310,000 to $8,207,000 (28.3% of restaurant sales) from $7,897,000 (30.4%
of restaurant sales) for the quarter ended March 31, 2020.
Bad Daddy’s food and packaging costs were
$5,881,000 (28.0% of restaurant sales) for the quarter ended March 30, 2021, up slightly from $5,835,000 (30.2% of restaurant sales) for
the quarter ended March 31, 2020. 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 bacon and
chicken wings but generally decreased on beef and chicken breasts, on a year-over-year basis.
Good Times food and packaging costs were $2,326,000
(29.0% of restaurant sales) for the quarter ended March 30, 2021, up from $2,062,000 (30.8% of restaurant sales) for the quarter ended
March 31, 2020. This increase is primarily attributable to increased restaurant sales. The 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 March 30, 2021 decreased $276,000 to $9,645,000 (33.3% of restaurant sales)
from $9,921,000 (38.2% of restaurant sales) for the quarter ended March 31, 2020.
Bad Daddy’s payroll and other employee benefit
costs were $6,996,000 (33.3% of restaurant sales) for the quarter ended March 30, 2021, down from $7,400,000 (38.3% of restaurant sales)
in the same prior year period. The $404,000 decrease is primarily attributable to lower restaurant sales during the current quarter versus
the same quarter in the prior year. The decrease as a percent of sales is primarily attributable to staffing reductions associated with
the closure of our Colorado dining rooms early in the quarter as well as industry-wide employment shortages for hourly restaurant positions.
Good Times payroll and other employee benefit
costs were $2,649,000 (33.0% of restaurant sales) in the quarter ended March 30, 2021, up from $2,521,000 (37.6% of restaurant sales)
in the same prior-year period. The decrease as a percent of sales is primarily attributable to the leveraging impact of the significant
sales increases. The average wage paid to our employees increased approximately 4.6% in the quarter ended March 30, 2021 compared to the
same prior year period.
Occupancy Costs. Occupancy costs
for the quarter ended March 30, 2021 decreased $57,000 to $2,155,000 (7.4% of restaurant sales) from $2,212,000 (8.5% of restaurant sales)
for the quarter ended March 31, 2020.
Bad Daddy’s occupancy costs were $1,413,000
(6.7% of restaurant sales) for the quarter ended March 30, 2021, down slightly from $1,471,000 (7.6% of restaurant sales) in the same
prior year period. The decrease as a percentage of sales was primarily due to the leveraging effect of increased restaurant sales.
Good Times occupancy costs were $742,000 (9.3%
of restaurant sales) in the quarter ended March 30, 2021, up slightly from $741,000 (11.0% of restaurant sales) in the same prior year
period. The decrease as a percentage of sales was primarily due to the leveraging effect of increased restaurant sales.
Other Operating Costs. Other operating
costs for the quarter ended March 30, 2021 increased $684,000 to $3,642,000 (12.6% of restaurant sales) from $2,957,000 (11.4% of restaurant
sales) for the quarter ended March 31, 2020.
Bad Daddy’s other operating costs were $2,860,000
(13.6% of restaurant sales) for the quarter ended March 30, 2021 up from $2,289,000 (11.9% of restaurant sales) in the same prior year
period. The $571,000 increase was primarily due to an increase in commissions paid to delivery service providers in the quarter ended
March 30, 2021 compared to the quarter ended March 31, 2020. The percentage increase was primarily attributable a significant shift in
delivery sales as a percentage of overall sales during the COVID-19 pandemic.
Good Times other operating costs were $782,000
(9.8% of restaurant sales) in the quarter ended March 30, 2021, up from $668,000 (10.0% of restaurant sales) in the same prior year period.
The increase was primarily attributable to an increase in commissions paid to delivery service providers in the quarter ended March 30,
2021 compared to the quarter ended March 31, 2020.
New Store Preopening Costs. In the
quarter ended March 30, 2021, we incurred $80,000 of preopening costs compared to $159,000 for the quarter ended March 31, 2020. All of
the preopening costs are related to our Bad Daddy’s restaurants.
Preopening costs in the current quarter are related
to two restaurants that are slated for opening in Q3 and Q4 2021. In the prior-year period, pre-opening costs were primarily attributable
to $100,000 of non-cash operating lease costs associated with these same two future Bad Daddy’s restaurants, as well as costs associated
with two restaurants that opened in the first fiscal quarter of 2020.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 March 30, 2021, decreased $183,000 to $930,000 from $1,113,000 in the quarter
ended March 31, 2020.
Bad Daddy’s depreciation and amortization
costs for the quarter ended March 30, 2021 decreased $160,000 to $738,000 from $898,000 in the quarter ended March 31, 2020. This decrease
was primarily attributable to reduced depreciation resulting from asset impairment charges recorded in the second fiscal quarter of 2020.
Good Times depreciation and amortization costs
for the quarter ended March 30, 2021 decreased $23,000 to $192,000 from $215,000 in the quarter ended March 31, 2020.
General and Administrative Costs.
General and administrative costs for the quarter ended March 30, 2021, increased $829,000 to $2,418,000 (8.3% of total revenue) from $1,588,000
(6.1% of total revenues) for the quarter ended March 31, 2020.
The $829,000 increase in general and administrative
expenses in the quarter ended March 30, 2021 is primarily attributable to:
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Increase in professional services of $318,000,
primarily related to increased legal expenses
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Increase in administrative related payroll and
benefit costs of $259,000 primarily related to increased estimated incentive compensation as of quarter-end and excess claims costs on
the company’s partially-self-insured health care plan.
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Increase in costs associated with district management
of $146,000 primarily related to increased estimated performance-based bonus provisions, offset by reduced travel costs
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Increase in incentive stock compensation costs
of $140,000 related to options and restricted stock units granted to our Directors and Chief Executive Officer
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Increase of $54,000 related to business insurance
premiums
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Decrease of $48,000 related to prior fiscal year
beverage contract fees
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Decrease of $50,000 related to vendor fee income
and early pay discounts
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Increase of $42,000 related to travel and entertainment
costs
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Decrease of $18,000 related to training and recruiting
costs
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Decrease of $11,000 related to preliminary site
costs
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Net decreases in all other expenses of $3,000
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For the balance of the fiscal year, we expect
general and administrative costs to continue to increase from fiscal 2020 due to increased insurance and health costs, and as we make
investments in new human resource and financial management systems, and as we compare against temporary salary reductions made during
fiscal 2020 in connection with actions taken amid the initial COVID-19 dining room closures.
Advertising Costs. Advertising costs
for the quarter ended March 30, 2021 were $510,000 (1.7% of total revenue), consistent with $510,000 (1.9% of total revenue) for the quarter
ended March 31, 2020.
Bad Daddy’s advertising costs were $186,000
(0.9% of total revenue) in the quarter ended March 30, 2021 compared to $240,000 (1.2% of total revenue) in the same prior year period.
The decrease was primarily attributable to $52,000 in costs incurred in the prior year quarter related to a local radio advertising campaign
in the Charlotte, North Carolina area. The current and prior year quarters include advertising costs of $4,000 and $3,000, respectively,
associated with franchise advertising contributions.
Bad Daddy’s advertising costs consist primarily
of contributions made to the advertising materials fund based on a percentage of restaurant sales as well as local store marketing efforts.
Good Times advertising costs were $324,000 (4.0%
of total revenue) in the quarter ended March 30, 2021 compared to $270,000 (4.0% of total revenue) in the same prior year period. The
increase is primarily due to increased sales in the current quarter versus the same prior year quarter. The current and prior year quarters
include advertising costs of $60,000 and $48,000, respectively, of costs associated with franchise advertising contributions.
Good Times advertising costs consists primarily
of contributions made to the advertising materials fund and a regional advertising cooperative based on a percentage of restaurant sales
which are used to provide television and radio advertising, social media and on-site and point-of-purchase. Advertising costs are presented
gross, with franchisee contributions to the fund being recognized as a component of franchise revenues. As a percentage of total revenue,
we expect advertising costs to remain relatively stable, at approximately 4.0% of total revenue for the Good Times segment.
Franchise Costs. Franchise costs
were $12,000 and $8,000 for the quarters ended March 30, 2021 and March 31, 2020, 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 quarters ended March 30, 2021 and March 31, 2020 were $10,000 and $9,000, respectively.
The gain in both years is related to deferred
gains on previous sale lease-back transactions on two Good Times restaurants.
Impairment Costs: Impairment costs
were $0 and $14,359,000 for the quarters ended March 30, 2021 and March 31, 2020, respectively. $4,359,000 of the costs in the prior year
quarter were related to five Bad Daddy’s restaurants’ assets that were impaired and $10,000,000 is attributable to an impairment
of goodwill related to our Bad Daddy’s reporting unit.
Income (loss) from Operations. Income
from operations was $1,603,000 in the quarter ended March 30, 2021 compared to a loss from operations of $14,533,000 in the quarter ended
March 31, 2020.
The change in the income (loss) from operations
for the quarter ended March 30, 2021 is due primarily due to matters discussed in the "Net Revenues,” "Restaurant Operating
Costs," "General and Administrative Costs”, “Advertising Costs” and “Impairment Costs” sections
above.
Net Income (Loss). Net income was
$1,523,000 for the quarter ended March 30, 2021 compared to a net loss of $14,742,000 in the quarter ended March 31, 2020.
The change from the quarter ended March 30, 2021
to the quarter ended March 31, 2020 was primarily attributable to the matters discussed in the "Net Revenues," "Restaurant
Operating Costs," "General and Administrative Costs", “Advertising Costs” and “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 March 30, 2021, the income
attributable to non-controlling interests was $426,000 compared to $174,000 for the quarter ended March 31, 2020.
$244,000 of the current quarter’s income
is attributable to the BDI joint-venture restaurants, compared to $112,000 in the same prior year period. This $132,000 increase is primarily
due to increased restaurant level profitability in the current fiscal quarter. $182,000 of the current quarter’s income is attributable
to the Good Times joint-venture restaurants, compared to $62,000 in the same prior year period. This $120,000 increase is primarily due
to increased restaurant level profitability in the current fiscal quarter.
Fiscal two quarters ended March 30, 2021
compared to fiscal two quarters ended March 31, 2020:
Net Revenues. Net revenues for the
two quarters ended March 30, 2021 decreased $508,000 or 0.9% to $56,488,000 from $56,996,000 for the two quarters ended March 26, 2019.
Bad Daddy’s concept revenues decreased $2,490,000 while our Good Times concept revenues increased $1,982,000.
Bad Daddy’s restaurant sales decreased $2,440,000
to $39,673,000 for the two quarters ended March 30, 2021 from $42,113,000 for the two quarters ended March 31, 2020. This includes sales
from delivery vendors of $8,335,000 for the two quarters ended March 30, 2021, an increase of $5,849,000 from $2,486,000 during the two
quarters ended March 31, 2020. The decrease in sales is primarily due to the impact of the 53rd week of the prior fiscal year.
We estimate the impact of the extra week of sales to be approximately $2,015,000. Bad Daddy’s same store sales for Company-owned
restaurants decreased 1.8% during the two quarters ended March 30, 2021 compared to the same prior-year two quarters. 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
two quarters ended March 31, 2020 over the same prior-year two quarters was approximately 3.2%. There were twenty-nine restaurants included
in the same store sales base at the end of the quarter. Additionally, net revenues were reduced by $50,000 in lower franchise royalties
and license fees compared to the prior-year two quarters primarily related to the Charlotte Airport licensee. Franchise revenues in the
current and prior year quarters each include franchisee advertising contributions of $7,000.
Good Times restaurant sales increased $1,925,000
to $16,403,000 for the two quarters ended March 30, 2021 from $14,478,000 for the two quarters ended March 31, 2020. Good Times same store
sales for Company-owned restaurants increased 22.5% during the two quarters ended March 30, 2021 compared to the same prior-year two quarters,
which was offset by 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 two quarters ended March 31, 2020 over the same prior-year two quarters was approximately 4.5%.
Franchise revenues increased $57,000 for the two quarters ended March 30, 2021, compared to the same prior year period. Franchise revenues
for the current and prior year quarters include franchisee advertising contributions of $123,000 and $102,000, respectively.
Restaurant Operating Costs
Food and Packaging Costs. Food and
packaging costs for the two quarters ended March 30, 2021 decreased $1,155,000 to $16,048,000 (28.6% of restaurant sales) from $17,203,000
(30.4% of restaurant sales) for the two quarters ended March 31, 2020.
Bad Daddy’s food and packaging costs were
$11,237,000 (28.3% of restaurant sales) for the two quarters ended March 30, 2021, down from $12,727,000 (30.2% of restaurant sales) for
the two quarters ended March 31, 2020. This 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.
Good Times food and packaging costs were $4,811,000
(29.3% of restaurant sales) for the two quarters ended March 30, 2021, up from $4,476,000 (30.9% of restaurant sales) for the two quarters
ended March 31, 2020. 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 two quarters ended March 30, 2021 decreased $3,374,000 to $18,526,000 (33.0% of restaurant
sales) from $21,900,000 (38.7% of restaurant sales) for the two quarters ended March 31, 2020.
Bad Daddy’s payroll and other employee benefit
costs were $13,263,000 (33.4% of restaurant sales) for the two quarters ended March 30, 2021 down from $16,403,000 (38.9% of restaurant
sales) in the same prior year period. The $3,140,000 decrease is primarily attributable to lower restaurant sales during the current quarter
versus the same quarter in the prior year as well as an additional week of operations in the prior year two quarters. The decrease as
a percent of sales is primarily attributable to staffing reductions associated with the closure of our Colorado dining rooms from late
November 2020 through early January 2021, as well as industry-wide employment shortages for hourly restaurant positions.
Good Times payroll and other employee benefit
costs were $5,263,000 (32.0% of restaurant sales) in the two quarters ended March 30, 2021, down from $5,497,000 (38.0% of restaurant
sales) in the same prior-year period. The decrease as a percent of sales is primarily attributable to the leveraging impact of the significant
sales increases.
Occupancy Costs. Occupancy costs
for the two quarters ended March 30, 2021 decreased $300,000 to $4,350,000 (7.8% of restaurant sales) from $4,650,000 (8.2% of restaurant
sales) for the two quarters ended March 31, 2020.
Bad Daddy’s occupancy costs were $2,867,000
(7.2% of restaurant sales) for the two quarters ended March 30, 2021 down from $3,115,000 (7.4% of restaurant sales) in the same prior
year period.
Good Times occupancy costs were $1,483,000 (9.0%
of restaurant sales) in the two quarters ended March 30, 2021, down from $1,535,000 (10.6% of restaurant sales) in the same prior year
period. The decrease as a percentage of sales was primarily due to the leveraging effect of increased restaurant sales.
Other Operating Costs. Other operating
costs for the two quarters ended March 30, 2021, increased $1,152,000 to $7,111,000 (12.7% of restaurant sales) from $5,959,000 (10.5%
of restaurant sales) for the two quarters ended March 26, 2019.
Bad Daddy’s other operating costs were $5,509,000
(13.9% of restaurant sales) for the two quarters ended March 30, 2021 up from $4,580,000 (10.9% of restaurant sales) in the same prior
year period. The $929,000 increase was primarily due to an increase in commissions paid to delivery service providers in the two quarters
ended March 30, 2021 compared to the two quarters ended March 31, 2020. The percentage increase was primarily attributable a significant
shift in delivery sales as a percentage of overall sales during the COVID-19 pandemic.
Good Times other operating costs were $1,602,000
(9.8% of restaurant sales) in the two quarters ended March 30, 2021, up from $1,379,000 (9.5% of restaurant sales) in the same prior year
period. The increase was primarily attributable to an increase in commissions paid to delivery service providers in the quarter ended
March 30, 2021 compared to the quarter ended March 31, 2020.
New Store Preopening Costs. In the
two quarters ended March 30, 2021, we incurred $119,000 of preopening costs compared to $961,000 for the two quarters ended March 31,2020.
All of the preopening costs are related to our Bad Daddy’s restaurants.
Preopening costs in the current two quarters are
related to two restaurants that are slated for opening in Q3 and Q4 2021. In the prior-year period, pre-opening costs are primarily attributable
to four restaurants: two that opened late during the fourth quarter of fiscal 2019, and two restaurants that opened during the first fiscal
quarter of 2020. In addition, the current two quarters includes $49,000 and the prior year two quarters included $100,000 of non-cash
operating lease costs associated with two future Bad Daddy’s restaurants. 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 two quarters ended March 30, 2021 decreased $333,000 to $1,859,000 from $2,192,000 in the
two quarters ended March 31, 2020.
Bad Daddy’s depreciation and amortization
costs for the two quarters ended March 30, 2021 decreased $290,000 to $1,475,000 from $1,765,000 in the two quarters ended March 31, 2021.
This decrease was primarily due to reduced depreciation resulting from asset impairment charges recorded in the second quarter of fiscal
2020.
Good Times depreciation and amortization costs
for the two quarters ended March 30, 2021, decreased $42,000 to $384,000 from $427,000 in the two quarters ended March 31, 2020.
General and Administrative Costs.
General and administrative costs for the two quarters ended March 30, 2021 increased $951,000 to $4,592,000 (8.1% of total revenue) from
$3,641,000 (6.4% of total revenue) for the two quarters ended March 31, 2020.
The $951,000 increase in general and administrative
expenses in the quarter ended March 30, 2021 is primarily attributable to:
|
·
|
Increase in professional services of $360,000
primarily related to increased legal fees
|
|
·
|
Increase in administrative related payroll and
benefit costs of $558,000 primarily related to increased estimated incentive compensation as of quarter-end and excess claims costs on
the company’s partially-self-insured health care plan.
|
|
·
|
Increase in costs associated with district management
of $47,000 primarily related to increased estimated performance-based bonus provisions
|
|
·
|
Increase in incentive stock compensation costs
of $127,000 related to options and restricted stock units granted to our Directors and Chief Executive Officer
|
|
·
|
Increase of $109,000 related to business insurance
premiums
|
|
·
|
Decrease of $84,000 related to prior fiscal year
beverage contract fees
|
|
·
|
Decrease of $54,000 related to vendor fee income
and early pay discounts
|
|
·
|
Increase of $77,000 related to travel and entertainment
costs
|
|
·
|
Decrease of $118,000 related to training and
recruiting costs
|
|
·
|
Decrease of $50,000 related to preliminary site
costs
|
|
·
|
Net decreases in all other expenses of $21,000
|
For the balance of the fiscal year, we expect
general and administrative costs to continue to increase from fiscal 2020 due to increased insurance and health costs, and as we make
investments in new human resource and financial management systems, and as we compare against temporary salary reductions made during
fiscal 2020 in connection with actions taken amid the initial COVID-19 dining room closures.
Advertising Costs. Advertising costs
for the two quarters ended March 30, 2021 decreased $37,000 to $1,019,000 (1.8% of total revenue) from $1,056,000 (1.9% of total revenue)
for the two quarters ended March 31, 2020.
Bad Daddy’s advertising costs were $353,000
(0.9% of total revenue) in the two quarters ended March 30, 2021 compared to $475,000 (1.1% of total revenue) in the same prior year period.
The decrease was primarily attributable to $52,000 in costs incurred in the prior year two quarters related to a local radio advertising
campaign in the Charlotte, North Carolina area. The current and prior year two quarters each include advertising costs of $7,000 associated
with franchise advertising contributions.
Bad Daddy’s advertising costs consist primarily
of contributions made to the advertising materials fund based on a percentage of restaurant sales as well as local store marketing efforts.
Good Times advertising costs were $666,000 (4.0%
of total revenue) in the two quarters ended March 30, 2021 compared to $581,000 (3.4% of total revenue) in the same prior year period.
The increase is primarily due to increased sales in the current quarter versus the same prior year quarter. The current and prior year
quarters include advertising costs of $123,000 and $102,000, 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 $17,000 and $8,000 for the two quarters ended March 30, 2021 and March 31, 2020, 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 on Restaurant Asset Disposals.
The gain on restaurant asset disposals for the two quarters ended March 30, 2021 was $19,000 compared to a gain of $28,000 in the two
quarters ended March 31, 2020.
$19,000 of the gain in the current year and $18,000
of the gain in the prior year is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The
additional gain of $10,000 in the prior year is related to the sale of miscellaneous restaurant equipment.
Impairment Costs: Impairment costs
were $0 and $14,359,000 for the two quarters ended March 30, 2021 and March 31, 2020, respectively. $4,359,000 of the costs in the prior
year were related to five Bad Daddy’s restaurants’ assets that were impaired and $10,000,000 was attributable to an impairment
of goodwill related to our Bad Daddy’s reporting unit.
Income (Loss) from Operations. Income
from operations was $2,866,000 in the two quarters ended March 30, 2021 compared to a loss of $14,905,000 in the two quarters ended March
31, 2020.
The change in the income (loss) from operations
for the two quarters ended March 30, 2021 is due primarily due to matters discussed in the "Net Revenues,” "Restaurant
Operating Costs," "General and Administrative Costs," “Advertising Costs” and “Impairment Costs”
sections above.
Net Income (Loss). Net income was
$2,688,000 for the two quarters ended March 30, 2021 compared to a net loss of $15,341,000 in the two quarters ended March 31, 2020.
The change from the two quarters ended March 31,
2020 to the two quarters ended March 30, 2021 was primarily attributable to the matters discussed in the "Net Revenues," "Restaurant
Operating Costs," "General and Administrative Costs," “Advertising Costs” and “Impairment Costs”
sections above as well as a decrease in net interest expense of $258,000 for the two quarters ended March 31, 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 two quarters ended March 30, 2021, the
income attributable to non-controlling interests was $789,000 compared to $386,000 for the two quarters ended March 31, 2020.
$425,000 of the current two quarters’ income
is attributable to the BDI joint-venture restaurants, compared to $245,000 in the same prior year period. This $180,000 increase is primarily
due to increased restaurant level profitability in the current two quarters. $364,000 of the current two quarters’ income is attributable
to the Good Times joint-venture restaurants, compared to $141,000 in the same prior year period.
Adjusted EBITDA
EBITDA is defined as net income (loss) before interest, income taxes
and depreciation and amortization.
Adjusted EBITDA is defined as EBITDA plus non-cash
stock-based compensation expense, preopening expense, non-recurring acquisition costs, GAAP rent in excess of cash rent, and non-cash
disposal of assets. Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by or presented in accordance
with GAAP. We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial
and business trends relating to our financial condition and operating results. Our management uses EBITDA and Adjusted EBITDA (i) as
a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of
our business strategies.
We believe that the use of EBITDA and Adjusted
EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's
financial measures with other fast casual restaurants, which may present similar non-GAAP financial measures to investors. In addition,
you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when
calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures
computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.
Our management does not consider EBITDA or Adjusted
EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of EBITDA
and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial
statements. Some of these limitations are:
|
·
|
Adjusted EBITDA does not
reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
·
|
Adjusted EBITDA does not
reflect changes in, or cash requirements for, our working capital needs;
|
|
·
|
Adjusted EBITDA does not
reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
|
|
·
|
although depreciation and
amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted
EBITDA does not reflect any cash requirements for such replacements;
|
|
·
|
stock based compensation
expense is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense
when evaluating our ongoing performance for a particular period;
|
|
·
|
Adjusted EBITDA does not
reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
|
|
·
|
other companies in our
industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
Because of these limitations, Adjusted EBITDA
should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for
these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplemental measure. You should review
the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net loss to EBITDA
and Adjusted EBITDA (in thousands) for the second fiscal quarter and year-to-date:
|
|
Quarter Ended
|
|
|
Year-to-Date
|
|
|
|
March 30, 2021
(13 Weeks)
|
|
|
March 31, 2020
(13 Weeks)
|
|
|
March 30, 2021
(26 Weeks)
|
|
|
March 31, 2020
(27 Weeks)
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, as reported
|
|
$
|
1,097
|
|
|
$
|
(14,916
|
)
|
|
$
|
1,899
|
|
|
$
|
(15,727
|
)
|
Depreciation and amortization
|
|
|
911
|
|
|
|
1,103
|
|
|
|
1,820
|
|
|
|
2,172
|
|
Interest expense, net
|
|
|
80
|
|
|
|
209
|
|
|
|
178
|
|
|
|
436
|
|
EBITDA
|
|
|
2,088
|
|
|
|
(13,604
|
)
|
|
|
3,897
|
|
|
|
(13,119
|
)
|
Preopening expense
|
|
|
80
|
|
|
|
159
|
|
|
|
119
|
|
|
|
961
|
|
Non-cash stock-based compensation
|
|
|
214
|
|
|
|
75
|
|
|
|
276
|
|
|
|
149
|
|
Non-recurring severance costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
GAAP rent-cash cash difference
|
|
|
(84
|
)
|
|
|
(144
|
)
|
|
|
(172
|
)
|
|
|
(23
|
)
|
Gain on disposal of assets
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
(19
|
)
|
|
|
(28
|
)
|
Asset impairment charge
|
|
|
-
|
|
|
|
14,359
|
|
|
|
-
|
|
|
|
14,359
|
|
Adjusted EBITDA
|
|
$
|
2,288
|
|
|
$
|
836
|
|
|
$
|
4,101
|
|
|
$
|
2,340
|
|
Depreciation and amortization expense have been
reduced by amounts attributable to non-controlling interests of $46,000 for each respective quarter and $95,000 for each respective year-to-date
period.
Liquidity and Capital Resources
Cash and Working Capital
We took extraordinary actions to increase our
liquidity in response to COVID-19 during fiscal 2020, including temporarily reducing employee pay, reductions in workforce, and obtaining
Paycheck Protection Program (the “PPP”) loans. The PPP is sponsored by the Small Business Administration (the “SBA”).
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.
As of March 30, 2021, we had a working capital
deficit of $7,169,000. This includes anticipated PPP principal payments of $8,148 that will be required in the next twelve months if the
PPP loans are not forgiven. Our working capital position benefits from the fact that we generally collect cash from sales to customers
the same day, or in the case of credit or debit card transactions, within a few days of the related sale. This benefit may increase when
new Bad Daddy’s and Good Times restaurants are opened. Although we have two to four weeks to pay many of our vendors, in the first
quarter of fiscal 2021 we chose to start paying our primary foodservice vendors on 1-3 day payment terms to take advantage of early pay
discounts. We believe that we will have sufficient capital to meet our working capital, long term debt obligations and recurring capital
expenditure needs throughout fiscal 2021. As of March 30, 2021, we had total commitments outstanding of $662,000 related to construction
contracts for Bad Daddy’s restaurants currently under development. Additionally, as discussed in the Financing section below, there
is uncertainty surrounding the forgiveness of our PPP loans which could significantly affect future cash commitments. We applied for full
PPP forgiveness on April 30, 2021. We anticipate these commitments will be funded out of existing cash or future borrowings against the
Cadence Credit Facility.
Financing
Cadence Credit Facility
The Company maintains a credit agreement with
Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $11,000,000 with a maturity
date of January 31, 2023 (the “Cadence Credit Facility”). On February 21, 2019 the Cadence Credit Facility was amended, in
connection with the repurchase of minority interests related to three Bad Daddy’s restaurants, to retroactively attribute EBITDA
previously attributed to non-controlling interests to the Company for purposes of certain financial covenants. On December 9, 2019 the
Cadence Credit Facility was amended in connection with the separation of the Company’s former CEO, to amend the definition of “Consolidated
EBITDA” for the purposes of financial covenants, to require certain installment payments, and to permit the company to make certain
“Restricted Payments” (as defined in the Cadence Credit Facility). On January 8, 2021, the Cadence Credit Facility was amended
to eliminate certain installment payments; reduce the commitment immediately to $11.0 million with reductions to $10.0 million and $8.0
million on March 31, 2021, and July 1, 2021, respectively; revise certain financial covenants; provide a mechanism for a transition from
LIBOR to an alternate benchmark rate; and extend the maturity date to January 31, 2023. As amended by the various amendments, the Cadence
Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. As of March 30, 2021, 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 March 30,
2021, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 3.75%.
Principal payments on the Cadence Credit Facility
were required beginning on March 31, 2020 in $250,000 installments on the last business day each of March, June, September, and December
in each calendar year. The total loan commitment was permanently reduced by the corresponding amount of each such repayment on such date.
New borrowings were permitted up to the amount of the loan commitment. The note was set to mature on December 31, 2021. Per the January
8, 2021 amendment, the quarterly principal payment requirement and associated commitment reduction was eliminated, and the maturity date
was extended to January 31, 2023.
As of March 30, 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 5.15:1, a minimum pre-distribution fixed charge coverage ratio of
1.25:1, a minimum post-distribution fixed charge coverage ratio of 1.10:1 and minimum liquidity of $2.0 million. As of March 30, 2021,
the Company was in compliance with all covenants under the Cadence Credit Facility.
As a result of entering into the Cadence Credit
Facility and the various amendments, the Company paid loan origination costs including professional fees of approximately $292,000 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 March 30, 2021, the outstanding balance
on borrowings against the facility was $3,500,000. 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 March 30, 2021, the outstanding face value of such letters of credit
was $157,500.
Paycheck Protection Program Loans
On May 7, 2020, Good Times and three of its wholly-owned
subsidiaries, BDI, Drive Thru, and BD Colo (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 PPP.
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 “Covered Period”).
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, and applied for full forgiveness
on April 30, 2021. However, in the absence of definitive guidance or regulations the Company cannot give any assurance that the Loans
will be forgivable in whole or in part.
In the event that any portion of the Loans are
not forgiven in accordance with the PPP, 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 SBA has deferred loan payments to either
(1) the date the SBA remits our forgiveness to the lender, or (2) 10 months after the end of the Covered Period, which would be in August
2021. However, as of the date of this report we have not yet received a decision from the SBA regarding forgiveness of our PPP loans or
communication regarding the official end date of our deferral period. 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 $8.1 million pursuant to the current payment amortization schedule. We intend to account for the forgiveness of such
loans at the time such forgiveness is granted.
Cash Flows
Net cash provided by operating activities was
$3,232,000 for the two quarters ended March 30, 2021. The net cash provided by operating activities for the two quarters ended March 30,
2021 was the result of net income of $2,688,000 as well as cash and non-cash reconciling items totaling $544,000. These reconciling items
are primarily comprised of 1) depreciation and amortization of general assets of $1,938,000, 2) amortization of operating lease assets
of $1,660,000, 3) stock-based compensation expense of $276,000, 4) an increase in receivables and other assets of $393,000, 5) a decrease
in deferred liabilities and accrued expenses of $237,000, 6) a decrease in accounts payable of $860,000 and 7) a net decrease in amounts
related to our operating leases of $1,821,000.
Net cash used in operating activities was $204,000
for the two quarters ended March 31, 2020. The net cash used in operating activities for the two quarters ended March 31, 2020 was the
result of a net loss of $15,341,000 as well as cash and non-cash reconciling items totaling $15,137,000 (these reconciling items are comprised
of 1) depreciation and amortization of general assets of $2,287,000, 2) amortization of operating lease assets of $2,054,000, 3) stock-based
compensation expense of $149,000, 4) impairment costs of 14,359,000 5) an increase in receivables and other assets of $68,000, 6) a decrease
in deferred liabilities and accrued expenses of $2,002,000 , 7) a decrease in accounts payable of $144,000 and 8) a net increase in amounts
related to our operating leases of $2,002,000.
Net cash used in investing activities for the
two quarters ended March 30, 2021 was $1,171,000 which primarily reflects the purchases of property and equipment of $1,184,000. Purchases
of property and equipment is comprised of the following:
|
·
|
$648,000 in costs for the development of Bad
Daddy’s locations
|
|
·
|
$311,000 for miscellaneous capital expenditures
related to our Bad Daddy’s restaurants
|
|
·
|
$18,000 in costs related to remodeling of one
Good Times location
|
|
·
|
$144,000 for miscellaneous capital expenditures
related to our Good Times restaurants
|
|
·
|
$63,000 for miscellaneous capital expenditures
related to our corporate office
|
Net cash used in investing activities for the
two quarters ended March 31, 2020 was $2,021,000 which primarily reflects the purchases of property and equipment of $1,954,000 and the
purchase of treasury stock of $75,000. Purchases of property and equipment is comprised of the following:
|
·
|
$1,756,000 in costs for the development of Bad
Daddy’s locations
|
|
·
|
$85,000 for miscellaneous capital expenditures
related to our Bad Daddy’s restaurants
|
|
·
|
$87,000 for miscellaneous capital expenditures
related to our Good Times restaurants
|
|
·
|
$26,000 for miscellaneous capital expenditures
related to our corporate office
|
Net cash used in financing activities for the
two quarters ended March 30, 2021 was $2,311,000, which includes principal payments on notes payable and long-term debt of $2,000,000,
proceeds from stock option exercises of $96,000 and distributions to non-controlling interests of $407,000.
Net cash provided by financing activities for
the two quarters ended March 31, 2020 was $3,536,000, which includes principal payments on notes payable and long-term debt of $1,400,000,
borrowings on notes payable and long-term debt of $5,300,000, contributions from non-controlling interests of $22,000 and distributions
to non-controlling interests of $386,000.
Contingencies
We remain contingently liable on various leases
underlying restaurants that were previously sold to franchisees. We have never experienced any losses related to these contingent lease
liabilities, however if a franchisee defaults on the payments under the leases, we would be liable for the lease payments as the assignor
or sublessor of the lease. Currently we have not been notified nor are we aware of any leases in default under which we are contingently
liable, however there can be no assurance that there will not be in the future, which could have a material effect on our future operating
results.
Additionally, in the normal course of business,
there may be various claims in process, matters in litigation, and other contingencies brought against the company by employees, vendors,
customers, franchisees, or other parties. Evaluating these contingencies is a complex process that may involve substantial judgment on
the potential outcome of such matters, and the ultimate outcome of such contingencies may differ from our current analysis. We review
the adequacy of accruals and disclosures related to such contingent liabilities in consultation with legal counsel. While it is not possible
to predict the outcome of these claims with certainty, it is management’s opinion that potential losses associated with such contingencies
would be immaterial to our financial statements.
Impact of Inflation
The total menu price increases at our Good Times
restaurants during fiscal 2020 were approximately 4.0%, and we raised menu prices approximately 4.5% during the first two quarters of
fiscal 2021. The total menu increases taken at our Bad Daddy’s restaurants during fiscal 2020 were approximately 4.0% on average.
We raised menu prices during the first two quarters of fiscal 2021 approximately 1.6% on average. Commodity prices have been slightly
elevated since the end of fiscal 2020 compared to the first two quarters of fiscal 2020. Due to the impact of the COVID-19 pandemic, availability
of certain commodities could be constrained and prices for those commodities could be substantially more volatile than in recent history.
Due to these factors, we are not able to predict the impact of inflation on our food and packaging costs for the balance of the year.
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.