Good Times Restaurants Inc. - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended 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)

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

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

Form 10-Q

Quarter Ended June 30, 2020

PART I. - FINANCIAL INFORMATION

Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data)

See accompanying notes to condensed consolidated financial statements (unaudited)

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

(In thousands except share and per share data)

See accompanying notes to condensed consolidated financial statements (unaudited)

Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Unaudited)
Year-to-Date June 30, 2020

(In thousands, except share and per share data)

See accompanying notes to consolidated financial statements (unaudited)

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)

See accompanying notes to condensed consolidated financial statements (unaudited)

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

(In thousands)

See accompanying notes to condensed consolidated financial statements (Unaudited)

GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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 (“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.

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 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 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 June 30, 2020 and the results of its operations and its cash flows for the three fiscal quarters ended June 30, 2020 and June 25, 2019. Operating results for the three fiscal quarters ended 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.  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 $176,000 and $223,000 for the first three quarters of 2020 and 2019, 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.

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.

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 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”).

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.

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)

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.

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.

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

As discussed further in Note 11, the Company recorded a $10,000,000 impairment to goodwill in the 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 three quarters ended June 30, 2020. The aggregate amortization expense related to these intangible assets subject to amortization was $25,000 for the three quarters ended June 30, 2020. The franchise rights were fully amortized at the end of the second fiscal quarter 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 June 30, 2020 is as follows (in thousands):

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 three quarters ended June 30, 2020 and June 25, 2019 includes $223,000 and $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 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 three quarters ended June 30, 2020, there were no incentive stock options granted.

During the three quarters ended June 25, 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:

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 June 30, 2020 under all plans:

As of June 30, 2020, the aggregate intrinsic value of both the outstanding and exercisable options was $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 June 30, 2020, the total remaining unrecognized compensation cost related to non-vested stock options was $215,000 and is expected to be recognized over a weighted average period of approximately 1.9 years.

There were 15,646 stock options exercised that resulted in an issuance of 2,413 shares during the three quarters ended 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 three quarters ended June 25, 2019 with proceeds of approximately $3,000.

Restricted Stock Units

During the three quarters ended June 30, 2020 the Company granted a total of 60,336 restricted stock units from available shares under its 2018 Plan. 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, 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 three quarters ended June 25, 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 June 30, 2020 is presented below.

As of June 30, 2020, there was $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 .9 years.

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 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 “Restricted Payments” (as defined in the Cadence Credit Facility) in the form of repurchases or redemptions of certain equity interests of the Company from former directors and officers of the Company in an aggregate amount not to exceed $100,000. As amended by the various amendments, the Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. All borrowings under the Cadence Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate, which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence bank publicly-announced prime rate, and (c) LIBOR plus 1.0%, or (ii) LIBOR, with a 0.250% floor, plus 3.5%. Interest is due at the end of each calendar quarter if the Company selects to pay interest based on the base rate and at the end of each LIBOR period if it selects to pay interest based on LIBOR. As of June 30, 2020, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 3.73%.

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 June 30, 2020, the outstanding balance on borrowings against the facility was $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 June 30, 2020, the outstanding face value of such letters of credit was $157,500.

Principal payments on the Cadence Credit Facility are required beginning on 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

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 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 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.

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:

Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities for this calculation consist of in-the-money outstanding stock options, restricted stock units and warrants (which were assumed to have been exercised at the average market price of the common shares during the reporting period). The treasury stock method is used to measure the dilutive impact of in-the-money stock options.

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

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.

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.

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 June 30, 2020:

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

Weighted average lease term and discount rate are as follows:

Supplemental cash flow disclosures for the three fiscal quarters ended June 30, 2020:

Supplemental balance sheet disclosures:

Future minimum rent payments for our operating leases for each of the next five years as of June 30, 2020 are as follows:

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.

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 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 May 2020.

Three of these restaurants are Bad Daddy’s restaurants, two in Colorado and 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 June 30, 2020 and June 25, 2019.

Goodwill. Goodwill represents the excess of cost over fair value of the assets of businesses the Company acquired. Goodwill is not amortized, but rather, the Company is required to test goodwill for impairment on an annual basis or whenever indications of impairment arise. The Company considers its operations to be comprised of two reporting units: (1) Good Times restaurants and (2) Bad Daddy’s restaurants. As of June 30, 2020, the Company had $96,000 of goodwill attributable to the Good Times reporting unit and $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 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):

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 carryforwards from prior years and incurred additional net operating losses during the three quarters ended June 30, 2020 and June 25, 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 June 30, 2020 and June 25, 2019 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 June 30, 2020.

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.

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

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

None.

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):

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:

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.

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 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.

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.

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 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 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.

Restaurant locations.

As of 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 third fiscal quarters of 2020 and 2019.

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

Franchise/License:

Results of Operations

Fiscal quarter ended June 30, 2020 compared to fiscal quarter ended June 25, 2019:

Net Revenues. Net revenues for the quarter ended June 30, 2020 decreased $5,093,000 or 17.3% to $24,357,000 from $29,450,000 for the quarter ended June 25, 2019. Bad Daddy’s concept revenues decreased $6,253,000 while our Good Times concept revenues increased $1,160,000.

Bad Daddy’s restaurant sales decreased $6,165,000 to $14,915,000 for the quarter ended June 30, 2020 from $21,080,000 for the quarter 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, offset by the negative impact of our dining room closures due to the COVID-19 pandemic. Bad Daddy’s same store restaurant sales decreased 36.7% during the quarter ended June 30, 2020 compared to the same prior-year 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 June 30, 2020 over the same prior-year quarter 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 $88,000 in lower franchise royalties and license fees compared to the prior-year quarter primarily due to the temporary closure of the Charlotte Airport licensee. Franchise revenues in the current and prior year quarters include franchisee advertising contributions of $3,000 and $4,000, respectively.

Good Times restaurant sales increased $1,175,000 to $9,275,000 for the quarter ended June 30, 2020 from $8,100,000 for the quarter ended June 25, 2019. Good Times same store restaurant sales increased 11.9% during the quarter ended June 30, 2020 compared to the same prior-year quarter, due to improved customer traffic in May and 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 June 30, 2020 over the same prior-year quarter was approximately 4.9%. Franchise revenues decreased $14,000 for the quarter 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 $64,000 and $87,000, respectively.

Restaurant Operating Costs

Food and Packaging Costs. Food and packaging costs for the quarter ended June 30, 2020 decreased $1,805,000 to $6,724,000 (27.8% of restaurant sales) from $8,529,000 (29.2% of restaurant sales) for the quarter ended June 25, 2019.

Bad Daddy’s food and packaging costs were $3,932,000 (26.4% of restaurant sales) for the quarter ended June 30, 2020, down from $6,063,000 (28.8% of restaurant sales) for the quarter ended June 25, 2019. This 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 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 but generally decreased on chicken, on a year-over-year basis.

Good Times food and packaging costs were $2,792,000 (30.1% of restaurant sales) for the quarter ended June 30, 2020, up from $2,466,000 (30.4% of restaurant sales) for the quarter ended June 25, 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 June 30, 2020 decreased $3,288,000 to $7,389,000 (30.5% of restaurant sales) from $10,677,000 (36.6% of restaurant sales) for the quarter ended June 25, 2019.

Bad Daddy’s payroll and other employee benefit costs were $4,780,000 (32.1% of restaurant sales) for the quarter ended June 30, 2020 down from $7,851,000 (37.2% of restaurant sales) in the same prior year period. The $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 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.

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:

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.

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.

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 decreased by 0.9%, compared to the same prior year period, primarily driven by reduced overall staffing during the third fiscal quarter of 2020.

Good Times payroll and other employee benefit costs were $8,109,000 (34.1% of restaurant sales) in the three quarters ended June 30, 2020, up from $7,956,000 (36.9% of restaurant sales) in the same prior-year period. The $153,000 increase was 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 decreased by 2.8%, 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 increased approximately 6.7% in the three quarters ended 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, particularly during the first two quarters of the year.

Occupancy Costs. Occupancy costs for the three quarters ended June 30, 2020 increased $518,000 to $6,739,000 (8.3% of restaurant sales) from $6,221,000 (7.7% of restaurant sales) for the three quarters ended June 25, 2019.

Bad Daddy’s occupancy costs were $4,600,000 (8.1% of restaurant sales) for the three quarters ended June 30, 2020 up from $4,022,000 (6.7% of restaurant sales) in the same prior year period. The $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 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 as well as the deleveraging effect of lower restaurant sales.

Good Times occupancy costs were $2,139,000 (9.0% of restaurant sales) in the three quarters ended June 30, 2020, down from $2,199,000 (10.2% of restaurant sales) in the same prior year period. The decrease was primarily attributable to 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 and property taxes.

Other Operating Costs. Other operating costs for the three quarters ended June 30, 2020, increased $965,000 to $9,673,000 (12.0% of restaurant sales) from $8,738,000 (10.7% of restaurant sales) for the three quarters ended June 25, 2019.

Bad Daddy’s other operating costs were $7,549,000 (13.2% of restaurant sales) for the three quarters ended June 30, 2020 up from $6,770,000 (11.3% of restaurant sales) in the same prior year period. The $779,000 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 as well as an increase of $826,000 in commissions paid to delivery service providers. The percentage increase was primarily attributable to the deleveraging impact of lower overall sales and the a significant shift in delivery sales as a percentage of overall sales, as customers migrated to delivery during the first two months of the COVID-19 pandemic and dining rooms were generally closed.

Good Times other operating costs were $2,124,000 (8.9% of restaurant sales) in the three quarters ended June 30, 2020, up from $1,938,000 (9.0% of restaurant sales) in the same prior year period. The increase was primarily attributable to an approximate $182,000 increase in commissions paid to delivery service providers.

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

Preopening costs in the current 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 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 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 the exact timing varies by location, we typically spend approximately $275,000 to $350,000 per location.

Depreciation and Amortization Costs. Depreciation and amortization costs for the three quarters ended June 30, 2020, decreased $52,000 to $3,175,000 from $3,227,000 in the three quarters ended June 25, 2019.

Bad Daddy’s depreciation and amortization costs for the three quarters ended June 30, 2020, decreased $7,000 to $2,535,000 from $2,542,000 in the three quarters ended June 25, 2019. This decrease was attributable to reduced depreciation resulting from asset impairment charges recorded in the fourth quarter 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 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 three quarters ended June 30, 2020, decreased $45,000 to $640,000 from $685,000 in the three quarters ended June 25, 2019.

General and Administrative Costs. General and administrative costs for the three quarters ended June 30, 2020, decreased $553,000 to $5,538,000 (6.8% of total revenue) from $6,091,000 (7.4%) of total revenues) for the three quarters ended June 25, 2019.

The $553,000 decrease in general and administrative expenses in the three quarters ended June 30, 2020 is primarily attributable to:

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

Advertising Costs. Advertising costs for the three quarters ended June 30, 2020, decreased $253,000 to $1,571,000 (1.9% of total revenue) from $1,824,000 (2.2% of total revenue) for the three quarters ended June 25, 2019.

Bad Daddy’s advertising costs were $617,000 (1.1% of total revenue) in the three quarters ended June 30, 2020 compared to $654,000 (1.1% of total revenue) in the same prior year period. The decrease is primarily due to lower sales in the current three quarters versus the same prior year period, the decrease was offset by $52,000 in costs incurred in the second fiscal quarter related to a local radio advertising campaign in the Charlotte, North Carolina area The current and prior year three quarters include advertising costs of $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.

Good Times advertising costs were $954,000 (3.9% of total revenue) in the three quarters ended June 30, 2020 compared to $1,170,000 (5.3% of total revenue) in the same prior year period. This $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 $167,000 and $212,000, 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 3.9% of total revenue for the Good Times segment.

Franchise Costs. Franchise costs were $14,000 and $31,000 for the three 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 three quarters ended June 30, 2020 was $36,000 compared to a loss of $5,000 in the three quarters ended June 25, 2019.

$28,000 of the gain in the current year is related to deferred gains on previous sale lease-back transactions on two Good Times restaurants. The additional gain of $8,000 in the current year is related to the sale of miscellaneous restaurant equipment. 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 $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 six Bad Daddy’s restaurants’ assets that were impaired and $10,000,000 is attributable to an impairment of goodwill related to our Bad Daddy’s reporting unit.

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

The change in the loss from operations for the three quarters 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 Loss. The net loss was $14,700,000 for the three quarters ended June 30, 2020 compared to a net loss of $49,000 in the three quarters ended June 25, 2019.

The change from the three quarters ended June 30, 2020 to the three quarters 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 as well as an increase in net interest expense of $77,000 for the three quarters ended 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 three quarters ended June 30, 2020, the income attributable to non-controlling interests was $738,000 compared to $912,000 for the three quarters ended June 25, 2019.

$319,000 of the current three quarters’ income is attributable to the BDI joint-venture restaurants, compared to $671,000 in the same prior year period. This $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 as well as reduced restaurant level profitability in the third fiscal quarter of 2020. $419,000 of the current three quarters’ income is attributable to the Good Times joint-venture restaurants, compared to $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.

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:

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 quarter and year-to-date:

Liquidity and Capital Resources

Cash and Working Capital

As of June 30, 2020, we had a working capital deficit of $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. We believe that we will have sufficient capital to meet our working capital, long term debt obligations and recurring capital expenditure needs for the remainder of fiscal 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 June 30, 2020, we had $354,000 in commitments outstanding related to construction contracts for a Bad Daddy’s restaurant that was under construction at the outset of the pandemic, but which has been halted due to the uncertainty created by COVID-19.

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

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 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 “Restricted Payments” (as defined in the Cadence Credit Facility) in the form of repurchases or redemptions of certain equity interests of the Company from former directors and officers of the Company in an aggregate amount not to exceed $100,000. As amended by the various amendments, the Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. All borrowings under the Cadence Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate, which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence bank publicly-announced prime rate, and (c) LIBOR plus 1.0%, or (ii) LIBOR, with a 0.250% floor, plus 3.5%. Interest is due at the end of each calendar quarter if the Company selects to pay interest based on the base rate and at the end of each LIBOR period if it selects to pay interest based on LIBOR. As of June 30, 2020, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 3.73%.

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 June 30, 2020, the outstanding balance on borrowings against the facility was $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 June 30, 2020, the outstanding face value of such letters of credit was $157,500.

Principal payments on the Cadence Credit Facility are required beginning on 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

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”).

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.

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.

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

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

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