# Good Times Restaurants Inc.: Form 10-Q for the period ended Dec 26, 2023

- Company: [Good Times Restaurants Inc.](/companies/gtim.md) (CIK 825324)
- Form: 10-Q
- Filed: 2024-01-31
- Accepted by EDGAR: Jan 31, 2024, 17:07 ET
- Period: 2023-12-26
- Accession: 0001437749-24-002706
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/825324/000143774924002706/gtim20231227_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/825324/000143774924002706/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-09-27 to 2023-12-26 | $33.1m | us-gaap:Revenues |
| Operating income | 3 months, 2023-09-27 to 2023-12-26 | −$374.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-09-27 to 2023-12-26 | $32.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-09-27 to 2023-12-26 | $77.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-09-27 to 2023-12-26 | −$556.0k | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-09-27 to 2023-12-26 | −$5.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-09-27 to 2023-12-26 | 11,377,579 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-09-27 to 2023-12-26 | −$252.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-09-27 to 2023-12-26 | $448.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-09-27 to 2023-12-26 | $438.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-12-26 | $3.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-12-26 | $7.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-12-26 | $90.1m | us-gaap:Assets |
| Current liabilities | at 2023-12-26 | $15.5m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-12-26 | $1.3m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-12-26 | $31.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,002 characters.

This Form 10-Q contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the disclosure of risk factors in the Company’s Form 10-K for the fiscal year ended September 26, 2023. Also, documents subsequently filed by us with the SEC and incorporated herein by reference may contain forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following:

(I) The disruption to our business from pandemics or other public health emergencies and the impact could have on our results of operations, financial condition and prospects. The disruption and effect on our business may vary depending on the duration and extent of the pandemics and other public health emergencies and the impact of federal, state and local governmental actions and customer behavior in response.

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

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

(IV) We may be negatively impacted if we are unable to pass on to customers through menu price increases the increased costs that we incur through inflation experienced in our input costs including both the cost of food and the cost of labor. Recent metrics have indicated that increased levels of price inflation are prevalent throughout the economy which have resulted in increases in commodity, labor and energy costs for both concepts as well as increased product substitutions, elevated freight costs, and increased variability in product quality. Further significant increases in inflation could affect the global and U.S. economies, which could have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently to offset the effect of cost increases without negatively impacting consumer demand.

We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers’ compensation or energy; inadequate number of hourly paid employees; increased wages and salaries for hourly and salaried employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 26, 2023.

### Overview.

Good Times Restaurants 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.

### 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 continue to evaluate that in line with the inflationary impact currently experienced by the restaurant industry.

### Restaurant locations.

As of December 26, 2023, we operated, franchised, or licensed a total of forty-one Bad Daddy’s restaurants and thirty-one Good Times restaurants. The following table presents the number of restaurants operating at the end of the first fiscal quarters of 2023 and 2022.

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

|  | Bad Daddy’s Burger Bar 2023 | 2022 | Good Times Burgers & Frozen Custard 2023 | 2022 | Total 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Alabama | 3 | 2 | - | - | 3 | 2 |
| Colorado | 11 | 12 | 25 | 23 | 36 | 35 |
| Georgia | 5 | 5 | - | - | 5 | 5 |
| North Carolina | 14 | 14 | - | - | 14 | 14 |
| Oklahoma | 1 | 1 | - | - | 1 | 1 |
| South Carolina | 4 | 4 | - | - | 4 | 4 |
| Tennessee | 2 | 2 | - | - | 2 | 2 |
| **Total** | **40** | **40** | **25** | **23** | **65** | **63** |

We acquired two Good Times restaurants in Greenwood Village and Lafayette, Colorado from franchisees during fiscal 2023.

### Franchise/License:

|  | Bad Daddy’s Burger Bar 2023 | 2022 | Good Times Burgers & Frozen Custard 2023 | 2022 | Total 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Colorado | - | - | 4 | 6 | 4 | 6 |
| North Carolina | 1 | 1 | - | - | 1 | 1 |
| Wyoming | - | - | 2 | 2 | 2 | 2 |
| **Total** | **1** | **1** | **6** | **8** | **7** | **9** |

### Results of Operations

### Fiscal quarter ended December 26, 2023 (13 weeks) compared to fiscal quarter ended December 27, 2022 (13 weeks):

***Net Revenues.*** Net revenues for the quarter ended December 26, 2023 decreased $262,000 or 0.8% to $33,132,000 from $33,394,000 for the quarter ended December 27, 2022. Bad Daddy’s concept revenues decreased $1,033,000 while our Good Times concept revenues increased $771,000.

Bad Daddy’s restaurant sales decreased $1,045,000 to $24,120,000 for the quarter ended December 26, 2023 from $25,165,000 for the quarter ended December 27, 2022. This decrease is due to the prior-year closure of the Cherry Creek location, reduced customer traffic, concentrated in several key markets, partially offset by menu price increases and sales from the Madison, Alabama restaurant which opened during the fourth quarter of fiscal 2023. The average menu price increase for the quarter ended December 26, 2023 over the same prior-year quarter was approximately 4.2%.

Good Times restaurant sales increased $812,000 to $8,826,000 for the quarter ended December 26, 2023 from $8,014,000 for the quarter ended December 27, 2022. This increase is primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees as well as increased customer traffic and menu price increases. The average menu price increase for the quarter ended December 26, 2023 over the same prior-year quarter was approximately 4.6%.

Franchise revenues decreased $29,000 to $186,000 in the quarter ended December 26, 2023 compared to $215,000 in the quarter ended December 27, 2022. This decrease is primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees.

#### Same Store Sales

Sales store sales is a metric used in evaluating the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are calculated using all company-owned units open for at least eighteen full fiscal months and use the comparable operating weeks from the prior year to the current year quarter’s operating weeks.

Bad Daddy’s same store restaurant sales decreased 6.2% during the fiscal quarter ended December 26, 2023 compared to the fiscal quarter ended December 27, 2022, primarily driven by general weakness in the casual dining restaurant segment as indicated by sequentially lower same store sales as measured by Black Box Intelligence, weaker traffic specific to Bad Daddy’s in several key markets, offset by menu price increases. There were thirty-nine restaurants included in the same store sales base at the end of the quarter.

Good Times same store restaurant sales increased 4.1% during the quarter ended December 26, 2023 compared to the same thirteen-week period ended December 27, 2022, primarily due to increased customer traffic and menu price increases. There were twenty-five restaurants included in the same store sales base at the end of the quarter.

### Restaurant Operating Costs

***Food and Packaging Costs.*** Food and packaging costs for the quarter ended December 26, 2023 decreased $280,000 to $10,327,000 (31.3% of restaurant sales) from $10,607,000 (32.0% of restaurant sales) for the quarter ended December 27, 2022.

Bad Daddy’s food and packaging costs were $7,608,000 (31.5% of restaurant sales) for the quarter ended December 26, 2023, down from $7,973,000 (31.7% of restaurant sales) for the quarter ended December 27, 2022. This decrease is primarily attributable to a combination of lower restaurant sales during the current fiscal quarter versus the prior fiscal quarter and lower purchase prices for food and paper goods. The decrease, as a percent of sales, is attributable to the impact of a 4.2% average annual increase in menu pricing as well as generally lower purchase prices in our commodity basket compared to the prior-year period.

Good Times food and packaging costs were $2,719,000 (30.8% of restaurant sales) for the quarter ended December 26, 2023, up from $2,634,000 (32.9% of restaurant sales) for the quarter ended December 27, 2022. This increase is primarily attributable to the impact of higher sales, offset by lower purchase prices on food and paper goods, as well as the impact of a 4.6% increase in menu pricing.

***Payroll and Other Employee Benefit Costs.*** Payroll and other employee benefit costs for the quarter ended December 26, 2023 increased $76,000 to $11,624,000 (35.3% of restaurant sales) from $11,548,000 (34.8% of restaurant sales) for the quarter ended December 27, 2022.

Bad Daddy’s payroll and other employee benefit costs were $8,641,000 (35.8% of restaurant sales) for the quarter ended December 26, 2023 down from $8,754,000 (34.8% of restaurant sales) in the same prior year period. The $113,000 decrease is primarily attributable to lower restaurant sales during the current quarter versus the same quarter in the prior year, offset by higher average pay rates. As a percent of sales, payroll and employee benefits costs increased by 1.0% primarily attributable to higher average wage rates paid to attract qualified employees and the deleveraging impact of lower sales on fixed labor costs, primarily manager salaries.

Good Times payroll and other employee benefit costs were $2,983,000 (33.8% of restaurant sales) in the quarter ended December 26, 2023, up from $2,794,000 (34.9% of restaurant sales) in the same prior-year period. The $189,000 increase is attributable to higher sales and higher average wage rates, partially offset by increased labor productivity. As a percent of sales, payroll and employee benefits costs decreased by 1.1% primarily attributable to a 4.6% increase in menu pricing and increased labor productivity, partially offset by increased wage rates.

***Occupancy Costs.*** Occupancy costs for the quarter ended December 26, 2023 increased $47,000 to $2,505,000 (7.6% of restaurant sales) from $2,458,000 (7.4% of restaurant sales) for the quarter ended December 27, 2022.

Bad Daddy’s occupancy costs were $1,719,000 (7.1% of restaurant sales) for the quarter ended December 26, 2023, down from $1,732,000 (6.9% of restaurant sales) in the same prior year period.

Good Times occupancy costs were $786,000 (8.9% of restaurant sales) in the quarter ended December 26, 2023, up from $726,000 (9.1% of restaurant sales) in the same prior year period. The increase was primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees.

***Other Operating Costs.*** Other operating costs for the quarter ended December 26, 2023, increased $236,000 to $4,728,000 (14.4% of restaurant sales) from $4,492,000 (13.5% of restaurant sales) for the quarter ended December 27, 2022.

Bad Daddy’s other operating costs were $3,581,000 (14.8% of restaurant sales) for the quarter ended December 26, 2023 up from $3,521,000 (14.0% of restaurant sales) in the same prior year period. The $60,000 increase was primarily attributable to increased repair and maintenance, technology and utility expenses, offset by reduced commissions paid to delivery service providers, due to decreases in delivery sales.

Good Times other operating costs were $1,147,000 (13.0% of restaurant sales) for the quarter ended December 26, 2023, up from $971,000 (12.1% of restaurant sales) in the same prior year period. The increase was primarily attributable increases in commissions paid to delivery service providers due to increases in overall delivery sales as well as increased repair and maintenance and utility expenses.

***Depreciation and Amortization Costs.*** Depreciation and amortization costs for the quarter ended December 26, 2023, increased $17,000 to $927,000 from $910,000 in the quarter ended December 27, 2022.

Bad Daddy’s depreciation and amortization costs for the quarter ended December 26, 2023 decreased $23,000 to $750,000 from $773,000 in the quarter ended December 27, 2022.

Good Times depreciation and amortization costs for the quarter ended December 26, 2023 increased $40,000 to $177,000 from $137,000 in the quarter ended December 27, 2022.

***General and Administrative Costs.*** General and administrative costs for the quarter ended December 26, 2023, decreased $65,000 to $2,313,000 (7.0% of total revenues) from $2,378,000 (7.1% of total revenues) for the quarter ended December 27, 2022.

This decrease in general and administrative expenses for the quarter ended December 26, 2023 is attributable to:

- Decrease in professional services of $73,000
- Decrease in office lease and equipment expense of $24,000
- Decrease in general travel related expenses of $49,000
- Decrease in recruiting and training related costs of $108,000
- Decrease in health insurance costs of $18,000
- Increase in home office payroll and benefit costs of $22,000
- Increase in costs associated with new multi-unit supervisory roles of $154,000
- Increase in technology costs of $17,000
- Increase in other costs of $14,000

For the balance of the fiscal year, we expect general and administrative costs to be approximately 7.0% - 8.0% of total revenues.

***Advertising Costs.*** Advertising costs for the quarter ended December 26, 2023, increased to $1,092,000 (3.3% of total revenues) from $894,000 (2.7% of total revenues) for the quarter ended December 27, 2022.

Bad Daddy’s advertising costs were $732,000 (3.0% of total revenues) in the quarter ended December 26, 2023 compared to $610,000 (2.4% of total revenues) in the same prior year period. The increase is primarily due to recognition of commission earned by third parties on gift cards sold through large-box retailers. Bad Daddy’s advertising costs consist primarily of third party gift card commissions, menu development, printing costs, local store marketing and social media.

Good Times advertising costs were $360,000 (4.0% of total revenues) in the quarter ended December 26, 2023 compared to $284,000 (3.5% of total revenues) in the same prior year period. The increase is primarily due to radio advertising and gift card and loyalty program expense.

Good Times advertising costs consist primarily of radio advertising, social media, and on-site and point-of-purchase printing costs. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues.

***Gain on Restaurant Asset and Equipment Sales.*** The gain on restaurant asset and equipment sales for the quarter ended December 26, 2023 was $10,000 compared to $0, which is composed of a net $8,000 loss on disposal of miscellaneous assets, offset by $8,000 of deferred gains, for the quarter ended December 27, 2022.

***(Loss) Income from Operations.*** Loss from operations was ($374,000) in the quarter ended December 26, 2023 compared to income from operations of $107,000 in the quarter ended December 27, 2022.

The change in the loss from operations for the quarter ended December 26, 2023 is due primarily due to matters discussed in the “Net Revenues”, “Food and Packaging Costs”, “Payroll and Other Employee Benefits Costs”, “Other Operating Costs”, “General and Administrative Costs” and “Advertising Costs” sections above.

***Interest Expense.*** Interest expense was $32,000 during the quarter ended December 26, 2023 compared with $12,000 during the quarter ended December 27, 2022.

***Provision for Income Taxes.*** There was $77,000 provision for income taxes for the quarter ended December 26, 2023, compared to $0 for the quarter ended December 27, 2022.

***Net (Loss) Income.*** Net loss was ($483,000) for the quarter ended December 26, 2023 compared to net income of $95,000 in the quarter ended December 27, 2022.

The change from the quarter ended December 26, 2023 to the quarter ended December 27, 2022 was primarily attributable to the matters discussed in the relevant sections above.

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

For the quarter ended December 26, 2023, the income attributable to non-controlling interests was $73,000 compared to $222,000 for the quarter ended December 27, 2022.

Of the current quarter’s income attributable to non-controlling interests, zero is attributable to Bad Daddy’s joint-venture restaurants, compared to $179,000 in the same prior year period. This reduction is due to the acquisition by the Company during fiscal year 2023 of the interests in the limited liability companies held by non-controlling parties.

The full $73,000 of the current quarter’s income is attributable to the Good Times joint-venture restaurants, compared to $43,000 in the same prior year period. This $30,000 increase is due to increased profitability of the restaurants involved in the limited partnership with a non-controlling partner.

### Adjusted EBITDA

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

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

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

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

- Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
- Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
- Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
- Stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing performance for a particular period;
- Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
- Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

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

The following table reconciles net loss/income to EBITDA and Adjusted EBITDA *(in thousands)* for the first fiscal quarter:

| Adjusted EBITDA: | Quarter Ended December 26, 2023 (13 Weeks) | December 27, 2022 (13 Weeks) |
| --- | ---: | ---: |
| **Net loss, as reported** | $(556) | $(127) |
| Depreciation and amortization | 929 | 867 |
| Interest expense, net | 32 | 12 |
| Provision for income taxes | 77 | - |
| EBITDA | 482 | 752 |
| Non-cash stock-based compensation (1) | 38 | 46 |
| GAAP rent-cash rent difference (2) | (163) | (124) |
| Gain on restaurant and equipment asset sales (3) | (10) | - |
| Adjusted EBITDA | $347 | $674 |

(1) Represents non-cash stock-based compensation as described in Note 5 to the Consolidated Financial Statements.

(2) Represents the excess of cash rent incurred over the amount of GAAP rent recorded in the Financial Statements.

(3) Represents deferred gains on previous sale-leaseback transactions on two Good Times restaurants.

Depreciation and amortization and the difference between GAAP rent and cash rent have been reduced by any amounts attributable to non-controlling interests.

### Liquidity and Capital Resources

### Cash and Working Capital

As of December 26, 2023, we had a working capital deficit of $8,500,000. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within a few days of the related sale and have payment terms with vendors that are typically between 14 and 21 days. Our current working capital deficit is additionally affected by the recognition of short-term lease liabilities, as we lease substantially all of our real estate and have both current- and long-term obligations to our landlords. We believe that we will have sufficient capital to meet our working capital, and recurring capital expenditure needs in fiscal 2024. We anticipate any commitments in fiscal 2024 will be funded out of existing cash or future borrowings against the Cadence Credit Facility.

On January 31, 2022 the Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue until the maximum value of shares is achieved or the Company terminates the program. The timing and amount of repurchases will depend upon the Company’s stock price, economic and market conditions, regulatory requirements, and other corporate considerations.

### Financing

#### Cadence Credit Facility

The Company and its wholly owned subsidiaries (the “Subsidiaries”) maintain an amended and restated credit agreement with Cadence Bank (“Cadence”) pursuant to which, Cadence agreed to loan the Company up to $8,000,000, which has a maturity date of April 20, 2028 (the “Cadence Credit Facility”). The Cadence Credit Facility amended and restated the Company’s prior credit facility with Cadence in its entirety. The Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. The loans may from time to time consist of a mixture of SOFR Rate Loans and Base Rate Loans with differing interest rates based upon varying additions to the Federal Funds Rate, the Cadence prime rate or Term SOFR. Each of the Subsidiaries are guarantors of the Cadence Credit Facility.

Proceeds from the Cadence Credit Facility, if and when drawn, may be used (i) to fund new restaurant development, (ii) to finance the buyout of non-controlling partners in certain restaurants, (iii) to finance the redemption, purchase or other acquisition of equity interests in the Company and (iv) for working capital and other general corporate purposes.

The Cadence Credit Facility includes customary affirmative and negative covenants and events of default. The Cadence Credit Facility also requires the Company to maintain various financial condition ratios, including minimum liquidity, an amended maximum leverage ratio and an amended minimum fixed charge coverage ratio. In addition, to the extent the aggregate outstanding balance under the revolver exceeds $4.0 million, the Company is required to meet a new specified leverage ratio, on a pro forma basis, before making further borrowings as well as certain restricted payments, investments and growth capital expenditures. As of the date of filing of this report, the Company was in compliance with each of these covenants under the Cadence Credit Facility.

During the fiscal quarter ended December 26, 2023 the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 8.45%.

As a result of entering into the Cadence Credit Facility and the various amendments, the Company paid loan origination costs including professional fees of approximately $299,000 and is amortizing these costs over the term of the credit agreement. As of December 26, 2023, the unamortized balance of these fees was $115,000.

In connection with the Cadence Credit Facility, the Company and the Subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”) with Cadence. Under the Security Agreement, the Cadence Credit Facility is secured by a first priority security interest in substantially all the assets of the Company and the Subsidiaries.

As of December 26, 2023, there were $1,250,000 of borrowings against the facility, all of which is due during the fiscal year ending September 26, 2028 and is classified as a long-term liability in the accompanying balance sheet. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of December 26, 2023, there were approximately $10,000 in outstanding letters of credit issued under the facility, and approximately $6,740,000 of committed funds available.

Total interest expense on notes payable was $26,000 and $0 for the quarters ended December 26, 2023 and December 27, 2022, respectively.

### Cash Flows

The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):

|  | Quarter ended December 26, 2023 | December 27, 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(252) | $(154) |
| Net cash used in investing activities | (448) | (719) |
| Net cash provided by (used in) financing activities | 33 | (1,119) |
| Net change in cash and cash equivalents | $(667) | $(1,992) |

#### Operating cash flows

Net cash from operating activities decreased by $98,000, primarily due to decreased net income (loss), offset by an increase in cash provided by ROU assets and operating lease liabilities and accrued other liabilities, as presented on the Condensed Consolidated Statements of Cash Flows.

#### Investing cash flows

Net cash used in investing activities for the quarters ended December 26, 2023 and December 27, 2022 were $448,000 and $719,000, respectively, which primarily reflect the purchases of property and equipment in each quarter.

#### Financing cash flows

Net cash provided by financing activities for the quarter ended December 26, 2023 was $33,000, which includes proceeds from long-term debt of $500,000, distributions to non-controlling interests of $29,000, and $438,000 in payments for the repurchase of common stock under the Company’s share repurchase program.

Net cash used in financing activities for the quarter ended December 27, 2022 was $1,119,000, which includes distributions to (net of contributions from) non-controlling interests of $159,000, payments for the purchase of treasury stock of $873,000, $92,000 in restricted stock vesting paid in cash, and proceeds from stock option exercise of $5,000.

### Impact of Inflation and Wage Increases at Both Concepts

Commodity prices, particularly for key proteins, remain high and volatile. We have seen lower costs across many commodities in our basket. Based on general industry consensus, we project that due to reductions in supply, ground beef costs will increase during the second half of fiscal 2024, as will other proteins and food-based commodities. We continue to experience elevated costs for paper and packaging, other restaurant supplies, and energy (utilities) costs.

In addition to food and supplies cost inflation, we have also experienced the need to meaningfully increase wages to attract restaurant employees, and in Colorado inflation-indexed statutory wage rate increases are creating upward pressure on wages.

We have historically used menu price increases to manage profitability in times of inflation, however consumer preferences and the relative pricing of competitors may prevent us from raising prices sufficient to offset the significant increases in labor costs, particularly in Colorado where wage pressures are caused by both statutory and market forces.

### Seasonality

Revenues of the Company are subject to seasonal fluctuations based on weather conditions adversely affecting Colorado restaurant sales primarily during the months of December, January, February, and March, which affects both of the Company’s brands, but the Company’s Good Times restaurants are more sensitive to these weather-based seasonal fluctuations. The Company’s Bad Daddy’s restaurants typically experience seasonal reductions in revenues between the months of November and January resulting from general consumer spending patterns.

## Controls and procedures

As filed, 948 characters.

### Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report on Form 10-Q, the Company’s Chief Executive Officer (its principal executive officer) and Senior Vice President of Finance and Accounting (its principal financial officer) have concluded that the Company’s disclosure controls and procedures were effective as of December 26, 2023.

### Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 26, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 160 characters.

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Form 10-K for the fiscal year ended September 26, 2023.

Filed Jan 31, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-002706. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.