GTIM · Read the filing

ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors before making an investment decision with respect to our securities. You are cautioned that the risk factors discussed below are not exhaustive.

Risks Related to Our Business

Our operations are susceptible to the cost of and changes in food availability which could adversely affect our operating results.

Our profitability depends in part on our ability to anticipate and react to changes in food costs. Various factors beyond our control, including adverse weather conditions, governmental regulation, production, availability, recalls of food products, seasonality and supply chain impacts due to pandemics or other public health situations may affect our food costs or cause a disruption in our supply chain. We enter annual contracts with our chicken and other miscellaneous suppliers. Our Good Times contracts for chicken are fixed price contracts. Our Bad Daddy’s contracts for chicken and all contracts for beef are generally based on current market prices plus a processing fee. Changes in the price or availability of our all-natural chicken or beef supply or other commodities could materially adversely affect our profitability. We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our operating results. In addition, we may not be able to pass along higher costs through price increases to our customers.

Macroeconomic conditions and inflation could affect our operating results.

General economic conditions, including economic downturns related to pandemics or other public health emergencies, have adversely affected our results of operations and may continue to do so. Similarly, significant inflation has negatively affected our labor and product input costs and could continue to do so. If the economy experiences a more significant economic downturn or there are uncertainties regarding continued economic prosperity, declines in stock market indices, or other negative macroeconomic occurrences, consumer spending and the unemployment rate may be affected, which may adversely affect our sales in the future. A proliferation of heavy discounting or highly competitive pricing by our major competitors may also negatively affect our sales and operating results.

Price increases may impact customer visits.

We may make price increases on selected menu items in order to offset increased operating expenses we believe will be recurring. Although we have not experienced significant consumer resistance to our past price increases, future price increases may deter customers from visiting our restaurants or affect their purchasing decisions.

Labor shortages could slow our growth or harm our business.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified, high-energy employees. Qualified individuals needed to fill these positions are in short supply in some areas, and in fiscal 2023 we have seen an extreme shortage of qualified workers by historical standards as has been reported in various news outlets. The inability to recruit and retain these individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants, which could harm our business. Additionally, competition for qualified employees has required us to pay meaningfully higher wages to attract enough employees than has historically been the case, and continued tightness in labor markets could result in continued escalation of labor costs. Most of our employees are paid market wages on an hourly basis that are influenced by applicable minimum wage regulations. Accordingly, any increase in the minimum wage, whether state or federal, could have a material adverse impact on our business.

Increasingly competitive labor markets and our need to provide additional incentives to remain competitive in our hiring and retention efforts may continue to negatively impact our margins and, if we are unable to staff and retain qualified restaurant management and operating personnel, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.

Our ongoing success requires us to attract, motivate and retain a sufficient number of qualified, high-energy employees, including both restaurant managers and crew. However, qualified individuals needed to fill these positions are in short supply in many areas, and we and other companies in our industry have experienced high turnover. Many individuals have left the restaurant industry altogether due to difficult pandemic-related operating demands and, in some cases, current unemployment subsidies. These conditions have resulted in aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive and attract talent, which in turn has led to higher labor costs and margin compression. If this trend continues, it will negatively impact our ability to effectively operate and grow our business and revenues and materially adversely affect our financial performance.

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If we fail to appropriately plan and sustain our workforce and proactively respond to employee dissatisfaction, it could adversely impact guest satisfaction and operational efficiency, lead to increased litigation and unionization efforts and negatively impact restaurant profitability. Our restaurants could be short staffed, we may be forced to incur overtime expenses, and our ability to operate and expand our concepts effectively and meet customer demand could be limited. Difficulties recruiting and retaining new restaurant crew members in a timely manner also negatively impacts our ability to grow sales at existing restaurants and open new restaurants. Any or all of these factors could materially adversely affect our financial performance.

The outbreak of, and local, state and federal governmental responses to, pandemics or other future health concerns have previously significantly disrupted and could disrupt our business again in the future, which has and could materially affect our financial condition and operating results.

The COVID-19 pandemic and the associated government response, change in consumer behavior, labor market effects and supply chain impacts significantly affected the results of operations and financial condition of our business. The risk of similar government and consumer response to future pandemics or other public health concerns, and the risk of similar impacts within the labor markets and global supply chain, could cause significant disruption to our business.

The failure of banks where we maintain deposits in excess of the limits insured by FDIC or other government or quasi-government agencies could materially affect our financial position and operating results.

The Company maintains deposits with certain banks in excess of the maximum insured limits by the FDIC. The significant interest rate increases by the Federal Reserve have caused recent bank failures. Although in certain of those cases, depositors have been protected from loss by government intervention, no assurances can be made in the case of any failure of a bank in which the Company has uninsured deposits, that the Company would be similarly protected against loss of such uninsured deposits.

International conflicts could disrupt our business and could materially affect our financial condition and operating results.

Although we conduct all of our restaurant operations within the USA, worldwide product supply chains have been impacted by international conflicts, which have expanded into new regions of the world recently. The lack of availability of supplies of such products may impact the availability and supplier pricing for products purchased by us for use in our business, which could result in higher food and packaging costs or reduced revenues. Consumer behavior may also be affected by international conflicts and may result in reduced traffic and sales at our restaurants.

We have accumulated losses and cannot guarantee future profits.

We have incurred losses in 29 of our 36 years since inception. As of September 26, 2023, we had an accumulated deficit of $19,235,000. Though we recognized net income in fiscal 2023, in light of the uncertainty of macro-economic conditions, increasing inflation and other factors affecting our supply chain and employee markets, we cannot provide assurance that we will produce income again or generate a loss for the fiscal year ending September 24, 2024.

If we are unable to continue to increase same store sales at existing restaurants, our ability to attain profitability may be adversely affected.

We have increased same store sales for twelve of the past thirteen years at Good Times. We have operated Bad Daddy’s for a shorter period of time and have recently experienced declines in same store sales. Same store sales increases will depend in part on the success of our advertising and promotion of new and existing menu items and consumer acceptance and could be greatly impacted by changes in general customer behavior and preferences. If our same store sales decline, and our operating costs increase, our ability to attain profitability will be adversely affected.

New restaurants, when and if opened, may not be profitable, if at all, for several months.

We anticipate that our new restaurants, when and if opened, will generally take several months to reach normalized operating levels due to inefficiencies typically associated with new restaurants, including lack of market awareness, the need to hire and train a sufficient number of employees, operating costs which are often materially greater during the first several months of operation than thereafter, preopening costs and other factors. In addition, restaurants opened in new markets may open at lower average weekly sales volumes than restaurants opened in existing markets and may have higher restaurant level operating expense ratios than in existing markets. Sales at restaurants opened in new markets may take longer to reach average annual company-owned restaurant sales, if at all, thereby affecting the profitability of these restaurants.

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Our operations are susceptible to the cost of and changes in food availability which could adversely affect our operating results.

Macroeconomic conditions and inflation could affect our operating results.

Price increases may impact customer visits.

The hamburger restaurant market is highly competitive.

The hamburger restaurant market is highly competitive. Our competitors in the quick-service restaurant segment include many recognized national and regional fast-food hamburger restaurant chains, such as McDonald’s, Burger King, Wendy’s, Carl’s Jr., Sonic, Jack in the Box, Freddy’s and Culver’s. In-N-Out has expanded into the state of Colorado, the primary state in which we operate, and is continuing to expand in the market, and Whataburger has announced its intention to expand into the state of Colorado. We also compete with small regional and local hamburger and other fast-food restaurants, many of which feature drive-thru service. Most of our competitors have greater financial resources, marketing programs and name recognition than we do. Discounting by our quick-service restaurant competitors may adversely affect the revenues and profitability of our restaurants.

While Bad Daddy’s Burger Bar operates in the “better burger” restaurant segment, it offers a relatively broad menu and competes with other full-service restaurants in the bar and grill segment. Additionally, customers of both our Good Times restaurants and Bad Daddy’s Burger Bar restaurants are also customers of fast casual hamburger restaurants. Further, changes in customer taste preferences, dietary trends, and preference for delivery and/or carry-out options often affect the restaurant business. If we are unable to continue to compete effectively with other restaurant concepts, our traffic, sales, and restaurant-level profitability could be negatively affected.

Sites for new restaurants may be difficult to acquire.

Locating our restaurants in high-traffic and readily accessible areas is an important factor for our success. We intend to continue to locate Bad Daddy’s Burger Bar restaurants in leased in-line and end-cap retail locations. Since suitable locations are in great demand, in the future we may not be able to obtain optimal sites for either of our restaurant concepts at a reasonable cost or at all. In addition, we cannot assure you that the sites we do obtain will be successful.

Our franchisees could take actions that could harm our business.

Franchisees are independent contractors and are not our employees. We provide training and support to franchisees; however, franchisees operate their restaurants as independent businesses. Consequently, the quality of franchised restaurant operations may be diminished by any number of factors beyond our control. Moreover, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements or may not hire and train qualified managers and other restaurant personnel. Our image and reputation, and the image and reputation of other franchisees, may suffer materially, and system-wide sales could significantly decline if our franchisees do not operate successfully.

We depend on key management employees.

We believe our current operations and future success depend largely on the continued services of our management employees, in particular Ryan Zink, our President and Chief Executive Officer and Don Stack, our Senior Vice President of Operations for Good Times. Although we have entered into an employment agreement with Mr. Zink, he may voluntarily terminate his employment with us at any time. In addition, we do not currently maintain key-person insurance on the lives of Messrs. Zink or Stack. We have not entered into an employment agreement with Mr. Stack. The loss of services by Messrs. Zink or Stack, or those of other key management personnel, could have a material adverse effect on our financial condition and results of operations.

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Security breaches of confidential customer information in connection with our electronic processing of credit and debit card transactions may adversely affect our business.

The majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their customers has been stolen. We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our customers’ credit or debit card information. In addition, most states have enacted legislation requiring notification of security breaches involving personal information, including credit and debit card information. Any such claim, proceeding, or mandatory notification could cause us to incur significant unplanned expenses, which could have an adverse impact on our financial condition and results of operations. Further, adverse publicity resulting from these allegations may have a material adverse effect on us and our restaurants.

We are subject to extensive government regulation that may adversely hinder or impact our ability to govern various aspects of our business including our ability to expand and develop our restaurants.

The restaurant industry is subject to various federal, state and local government regulations, including those relating to the sale of food. Our failure to maintain necessary governmental licenses, permits and approvals, including food licenses, could adversely affect our operating results. Difficulties or failures in obtaining the required licenses and approvals could delay, or result in our decision to cancel, the opening of new restaurants. Local authorities may suspend or deny renewal of our food licenses if they determine that our conduct does not meet applicable standards or if there are changes in regulations. In addition, any adverse food safety event could result in regulatory and other investigations, and/or fines and penalties, any of which could disrupt our operations, increase our costs, require us to respond to findings from regulatory agencies that may divert resources and assets, and result in potential fines and penalties as well as other legal action, any of which could materially adversely affect our financial performance.

Various federal, state and labor laws govern our relationship with our employees and affect operating costs. These laws govern minimum wage requirements, overtime pay, meal and rest breaks, unemployment tax rates, workers’ compensation rates, citizenship or residency requirements, child labor regulations and sales taxes. Additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits may increase our operating costs. Several states and cities, including the city of Denver and the state of Colorado, where many of our restaurants are located, have legislation passed which provides for annual increases in their respective minimum wage. Additional states may raise their respective minimum wage in the future. This could impact the profitability of existing restaurants as well as impact development opportunities in those states.

The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for, disabled persons.

We are also subject to federal and state laws that regulate the offer and sale of franchises and aspects of the licensor-licensee relationship. Many state franchise laws impose restrictions on the franchise agreement, including limitations on non-competition provisions and the termination or non-renewal of a franchise. Some states require that franchise materials be registered before franchises can be offered or sold in the state.

Our Bad Daddy’s Burger Bar restaurants are also subject to state and local laws that regulate the sale of alcoholic beverages. Alcoholic beverage control regulations govern various aspects of these restaurants’ daily operations, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory control, handling and storage. Typically, licenses to sell alcoholic beverages require annual renewal and may be suspended or revoked at any time for cause, the definition of which varies by locality. The failure of any of our Bad Daddy’s Burger Bar restaurants to timely obtain and maintain any required licenses, permits or approvals to serve alcoholic beverages could delay or prevent the opening of a new restaurant or prevent regular day-to-day operations, including the sale of alcoholic beverages, at a restaurant that is already operating, any of which would adversely affect our business.

Concerns relating to food safety, food-borne illness, pandemics and other diseases could reduce customer traffic to our restaurants, or cause us to be the target of litigation, which could materially adversely affect our financial performance.

We face food safety risks, including the risk of food-borne illness and food contamination (including allergen cross contamination), which are common both in the restaurant industry and the food supply chain. While we dedicate substantial resources and provide training to ensure the safety and quality of the food we serve, these risks cannot be completely eliminated. Additionally, we rely on our network of suppliers to properly handle, store and transport our ingredients for delivery to our restaurants. Any failure by our suppliers, or their suppliers, could cause our ingredients to be contaminated, which could be difficult to detect and put the safety of our food in jeopardy.

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In addition to the novel coronavirus that causes COVID-19, consumer preferences could be affected by health concerns about outbreaks of other viruses, including various strains of influenza; the consumption of beef, the key ingredient in many of our menu items; or negative publicity concerning food quality, illness and injury generally, such as negative publicity concerning E. coli, “mad cow” or “foot-and-mouth” disease, publication of government or industry findings concerning food products served by us, or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants. This negative publicity may adversely affect demand for our food and could result in a decrease in customer traffic to our restaurants. If we react to the negative publicity by changing our concept or our menu, we may lose customers who do not prefer the new concept or menu, and we may not be able to attract a sufficient new customer base to produce the revenue needed to make our restaurants profitable. In addition, we may have different or additional competitors for our intended customers as a result of a concept change and may not be able to compete successfully against those competitors. A decrease in customer traffic to our restaurants as a result of these health concerns or negative publicity or as a result of a change in our menu or concept could materially harm our business. Additionally, if our customers or staff members become infected with a pathogen which was actually or claimed to be contracted at our restaurants, customers may avoid our restaurants and/or it may become difficult to adequately staff our restaurants. Any adverse food safety occurrence may result in litigation against us. The negative publicity associated with such an event could damage our reputation and materially adversely affect our financial performance.

The inability of the company to successfully negotiate extended terms on leases reaching end-of-term may reduce future profitability.

The company leases the real estate underlying substantially all of its restaurants. While our leases generally have options for extension of the initial term, in the case of some of our Good Times restaurants, we have exercised all of the options granted to us under the lease. Additionally, some options are set at fair market rental rates, and in the case of one Bad Daddy’s restaurant, no option to extend exists in the lease. Furthermore, many of our Good Times leases are at rates below current market prices. Although the Company has generally been successful in negotiations with our landlords, the risk that we are unable negotiate additional lease term on expiring leases at reasonable rental rates could materially impact our future profitability.

If we are unable to protect our reputation, the value of our brands and sales at our restaurants may be negatively impacted, which may materially adversely affect our financial performance.

One of our largest assets is the value of our brands, which is directly linked to our reputation. We must protect our reputation in order to continue to be successful and to grow the value of our brands. Negative publicity directed at any of our brands, regardless of factual basis, such as, relating to food quality, restaurant facilities, customer complaints or litigation alleging injury or food-borne illnesses, food tampering or contamination or poor health inspection scores, sanitary or other issues with respect to food processing by us or our suppliers, the condition of our restaurants, labor relations, any failure to comply with applicable regulations or standards, allegations of harassment, or other negative publicity, could damage our reputation. Negative publicity about us could harm our reputation and damage the value of our brands, which could materially and adversely affect our financial performance.

Our ability to succeed with the Bad Daddy’s Burger Bar restaurant concept will require significant capital expenditures and management attention.

We believe that new openings of Bad Daddy’s Burger Bar restaurants are likely to serve as the primary contributor of our new unit growth and increased profitability over the longer term based on the unit economics of that concept. Our ability to succeed with this concept will require significant capital expenditures and management attention and is subject to certain risks in addition to those of opening a new Good Times restaurant, including customer acceptance of and competition with the Bad Daddy’s Burger Bar concept. If the “ramp-up” period for new Bad Daddy’s Burger Bar restaurants does not meet our expectations, our operating results may be adversely affected. There can be no assurance that we will be able to successfully develop and grow the Bad Daddy’s Burger Bar concept to a point where it will become profitable or generate positive cash flow. We may not be able to attract enough customers to meet targeted levels of performance at new Bad Daddy’s Burger Bar restaurants because potential customers may be unfamiliar with the concept, or the atmosphere or menu might not be appealing to them. If we cannot successfully execute our growth strategies for Bad Daddy’s Burger Bar, our business and results of operations may be adversely affected.

Our growth, including the development of Bad Daddy’s Burger Bar restaurants, may strain our management and infrastructure.

Any growth of our business would increase our operating complexity and place increased demands on our management and infrastructure, including our current restaurant management systems, financial and management controls, and information systems. If our infrastructure is insufficient to support our growth, our ability to open new restaurants, including the development of the Bad Daddy’s Burger Bar concept, would be adversely affected.

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Bad Daddy’s Burger Bar is subject to all of the risks of a relatively new business, including competition, and there is no guarantee of a return on our capital investment.

The Bad Daddy’s Burger Bar concept has been in existence for approximately sixteen years and the average age for all Bad Daddy’s restaurants, as of the date of this filing, is 7.0 years. Existing restaurants are currently located in Alabama, Colorado, Georgia, North Carolina, Oklahoma, South Carolina, and Tennessee. Because of the small number of existing Bad Daddy’s Burger Bar restaurants and the relatively short period of time that they have been in operation, there is substantial uncertainty that additional restaurants in other locations will be successful. Though the Company currently has no franchisee-owned restaurants, the Company has offered franchises in the past and may do so again in the future. There is no guarantee that we will be successful in offering Bad Daddy’s Burger Bar franchises throughout the U.S. or that, if and when, such franchises are granted, the restaurants developed by franchisees will be successful.

Costs associated with our employee health care programs continue to escalate and we may not be able to fully pass along those cost increases to employees.

We maintain various health care programs, including coverage for medical claims, to employees who select such programs. All of our salaried managers are eligible to participate in these programs and those of our hourly employees who meet the service requirements under the Affordable Care Act are also eligible. We maintain insurance coverage for claims in excess of a certain threshold on a per-member basis but do not maintain insurance coverage for aggregate claims. We have a limited number of participants in our plans and should a significant number of participants report claims in a given year, the actual claims under the plan may meaningfully exceed our expected claims, and any such costs would be borne by us and not by the participants in the plan (our Employees).

Risks Related to the Ownership of Our Common Stock

Our business could be negatively affected as a result of significant shareholders or potential shareholders attempting to effect changes or acquire control over our company, which could cause us to incur significant expense, hinder execution of our business strategy and impact the trading value of our securities.

Shareholders may from time-to-time attempt to effect changes, engage in proxy solicitations or advance shareholder proposals. Responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of our board of directors and senior management from the pursuit of business strategies. Any of these impacts could materially and adversely affect our business and operating results. Further, the market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties described above.

Future changes in financial accounting standards may cause adverse unexpected operating results and affect our reported results of operations.

Changes in accounting standards can have a significant effect on our reported results and may affect our reporting of transactions completed before the change is effective. See Note 1 to our Consolidated Financial Statements for further discussion. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing rules or differing interpretations with respect to our current practices may adversely affect our reported financial results.

Because we currently qualify as a “smaller reporting company,” our disclosures of non-financial and financial information are less than is required by non-smaller reporting companies.

Currently we qualify as a “smaller reporting company” under SEC rules. A smaller reporting company prepares and files SEC reports and registration statements using the same forms as other SEC reporting companies, though the information required to be disclosed may differ and be less comprehensive.

We cannot predict whether investors will find our common stock less attractive because of our reliance on any of the reduced disclosure requirements available to smaller reporting companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

The price of our common stock may fluctuate significantly.

The trading price of our shares of common stock has from time-to-time fluctuated widely and, in the future may be subject to similar fluctuations. This volatility may affect the price at which you could sell your common stock. The market price of our common stock is likely to continue to be volatile and may fluctuate significantly in response to many factors, including:

● the impact pandemics, including the COVID-19 pandemic on our business;

● developments in our business;

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● changes in market valuations of similar companies;

● additions or departures of key management personnel;

● actions by institutional shareholders;

● speculation in the press or investment community; and

Holders of our common stock will be subject to the risk of volatile and depressed market prices of our common stock. In addition, many of the factors listed above are beyond our control. These factors may cause the market price of our common stock to decline, regardless of our financial condition, results of operations, business or prospects. It is impossible to assure investors in our common stock that the market price of our common stock will not fall in the future.

Sales of a substantial number of shares of our common stock in the public market by our existing Shareholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise adequate capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

There may be future sales or other dilution of our equity, which may adversely affect the market price of the shares of our common stock and/or dilute the value of shares of our common stock.

We are not restricted from issuing, and shareholder approval is not required in order to issue, additional shares of common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock, except any shareholder approval required by The NASDAQ Capital Markets. We have in the past, and may in the future, sell such equity and equity-linked securities. Sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of our shares of common stock. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our shares of common stock. The market price of our common stock may be adversely affected if we issue additional shares of our common stock.

Provisions in our articles of incorporation and bylaws and provisions of Nevada law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

We are subject to anti-takeover laws for Nevada corporations. These anti-takeover laws prevent a Nevada corporation from engaging in a business combination with any shareholder, including all affiliates and associates of the shareholder, who is the beneficial owner of 10% or more of the corporation’s outstanding voting stock, for two years following the date that the shareholder first became the beneficial owner of 10% or more of the corporation’s voting stock, unless specified conditions are met. If those conditions are not met, then after the expiration of the two-year period the corporation may not engage in a business combination with such shareholder unless certain other conditions are met.

Our articles of incorporation and our bylaws contain several provisions that may deter or impede takeovers or changes of control or management. These provisions:

These provisions, alone or in combination with each other, may discourage transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium over prevailing market prices to shareholders for their common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

We currently lease approximately 7,650 square feet of space for our executive offices in Golden, Colorado for approximately $122,400 per year, under a lease agreement which expires in October 2027.

Most of our existing Good Times restaurants are a combination of free-standing structures containing approximately 880 to 1,000 square feet for the double drive thru format and approximately 2,100 to 2,400 square feet for those locations with a 45 to 70 seat dining room. With the exception of one Good Times restaurant where we own both the land and building underlying, we do not own the land underlying these restaurants and either lease the land or the land and building. In addition, we have several restaurants that are conversions from other concepts in various sizes ranging from 1,700 square feet to 3,500 square feet. The buildings are situated on lots of approximately 18,000 to 50,000 square feet. Any future development is expected to be conducted through a combination of ground leases and land purchases.

Our Bad Daddy’s restaurants are leased spaces of approximately 3,500 to 4,000 square feet in retail developments located in Alabama, Colorado, Georgia, North Carolina, Oklahoma, South Carolina, and Tennessee. We expect future development to be conducted through the leasing of end-cap spaces in retail developments, ground leases, and or land purchases upon which we would be able to build 3,000 – 4,000 square foot standalone building suitable for restaurants, or if the site characteristics otherwise met our criteria, larger sites where we would be able to construct multi-tenant buildings, where we would be able to occupy a portion of the space with a Bad Daddy’s restaurant and lease other portions of the building to restaurant or non-restaurant tenants.

All of the restaurants are regularly maintained by our repair and maintenance staff as well as by outside contractors, when necessary. We believe that all of our properties are in good condition and that there will be a need for periodic capital expenditures to maintain the operational and aesthetic integrity of our properties for the foreseeable future, including recurring maintenance and periodic capital improvements. All of our properties are covered up to replacement cost under our property and casualty insurance policies and in the opinion of management are adequately covered by insurance. Our restaurants serve as collateral for the Cadence Credit Facility as discussed in the Notes to Consolidated Financial Statements included in this report.

ITEM 3. LEGAL PROCEEDINGS

For a discussion of material legal proceedings affecting the Company, see Note 5 to the audited Consolidated Financial Statements included in this report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

Shares of our Common Stock are listed for trading on the NASDAQ Capital Market under the symbol “GTIM”. As of December 14, 2023, there were approximately 53 holders of record of our common stock. Because many shares of our common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these holders of record.

Dividend Policy

We have never paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future. In addition, we have obtained financing under loan agreements that restrict the payment of dividends. Our ability to pay future dividends will necessarily depend on our earnings and financial condition. However, since restaurant development is capital intensive, we currently intend to retain any earnings for that purpose.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

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 actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. As of September 26, 2023, the Company has purchased approximately 1,127,188 shares of its common stock pursuant to the share repurchase plan leaving approximately $1,778,000 available for repurchases under the plan.

ITEM 6. [RESERVED]

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

We operate as two reportable business segments: Good Times Burgers and Frozen Custard restaurants (“Good Times”) and Bad Daddy’s Burger Bar restaurants (“Bad Daddy’s”). All of our Good Times restaurants compete in the quick service drive-thru segment of the restaurant industry while our Bad Daddy’s restaurants compete in the full-service casual dining segment of the restaurant industry. We believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results. Refer to Note 10, Segment Reporting, in the notes to our consolidated financial statements for more information.

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 comprises 13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks. Our discussion for the fiscal years ending September 26, 2023 and September 27, 2022 each cover periods of 52 full calendar weeks.

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The following tables present information about our reportable segments for the respective periods, all dollar values are represented in thousands:

Fiscal Year

Bad Daddy’s:

Restaurant operating costs: (1)

Gain on disposal of assets (4 ) 0.0 % 0 0.0 %

Income (loss) from operations (1,342 ) (1.3% ) (811 ) (0.8% )

Good Times:

Restaurant operating costs: (1)

Litigation Contingencies 0 0.0 % 332 1.0 %

Gain on restaurant asset sale (37 ) (0.1% ) (676 ) (1.9% )

Income from operations $ 2,305 6.5 % $ (67 ) (0.2% )

(1) Restaurant operating costs are expressed as a percentage of restaurant sales.

(2) Includes direct and allocated corporate general and administrative costs.

Bad Daddy’s Restaurants

We currently operate forty company-owned Bad Daddy’s restaurants, including five restaurants that were previously owned by subsidiaries with third parties. We acquired the non-controlling interests in those subsidiaries during January 2023. We also license one restaurant in North Carolina. We anticipate opening one new Bad Daddy’s restaurant during fiscal 2024. Due to the volatile rate of inflation of our raw products, we cannot, at this time, reasonably predict our expected price increases during fiscal 2024 at our Bad Daddy’s restaurants. Commodity costs have in general trended moderately upward early in fiscal 2024.

Good Times Burgers & Frozen Custard Restaurants

We currently operate twenty-five company-owned and joint-venture Good Times restaurants all in the state of Colorado. In addition, we have six Good Times franchise restaurants, four operating in Colorado and two in Wyoming.

Due to the volatility in the rate of inflation of our raw products, we cannot at this time reasonably predict our expected price increases during fiscal 2024 at our Good Times restaurants. Commodity costs have in general trended moderately upward early in fiscal 2024.

Impact of Inflation at Both Concepts

Commodity prices, particularly for key proteins, have recently been at near-record highs and have exhibited extreme volatility. During the fourth quarter of fiscal 2023 we experienced meaningful price inflation which has continued into our first quarter of 2024. We are experiencing price inflation in most goods, including 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. While we are hopeful that wage rate inflation moderates, the persistent shortage of qualified workers, and in Colorado inflation-indexed statutory wage rate increases are creating upward pressure on wages.

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We have historically used menu price increases to manage profitability in times of inflation, however the current unusually high rate of inflation, both of goods and labor, exceeds what we believe we can reasonably pass through to our customers without negatively affecting frequency and trial by our customers.

Same Store Sales

Same store sales for each brand represent the comparison of restaurant sales in the current year, to the same comparable weeks in the immediately preceding fiscal year for those stores open for at least 18 months. Same store sales is a commonly used metric in the restaurant industry and management believes it is an indicator of strength of a brand and its existing restaurant locations. Further, management believes that by excluding growth achieved through new unit development, same store sales provide a metric that measures organic growth within the Company’s existing restaurants.

Results of Operations for Fiscal 2023 Compared to Fiscal 2022

Net Revenues: Net revenues for fiscal 2023 decreased $78,000 (-0.1%) to $138,122,000 from $138,200,000 for fiscal 2022. Bad Daddy’s concept revenues decreased $985,000 while our Good Times concept revenues increased $907,000.

Bad Daddy’s restaurant sales decreased $975,000 to $102,241,000 in fiscal 2023 from $103,216,000 in fiscal 2022. Sales were negatively affected by the closure of the Cherry Creek location and the temporary closure of one restaurant for remodeling. Sales were also affected by reduced customer traffic, more heavily in the Atlanta and Raleigh markets, partially offset by menu price increases. Bad Daddy’s same store restaurant sales, also referred to as comparable sales, increased 0.1% during fiscal 2023 compared to fiscal 2022. Bad Daddy’s restaurants are included in same store sales after they have been open a full eighteen months. This increase is due to average menu price increases throughout the year, offset by weaker traffic in some markets. The average menu price increase was approximately 4.4% in 2023 over 2022. There were thirty-nine restaurants included in the same store sales base at the end of the fiscal year. Additionally, net revenues for fiscal 2023 were decreased by $10,000 in lower franchise royalties and license fees compared to the prior fiscal year, primarily related the acquisition of a franchisee-owned restaurant in mid-fiscal 2022. Fiscal 2022 revenues for Bad Daddy's include franchise advertising contributions of $9,000.

Additional sales data related to Bad Daddy’s company-owned restaurants:

Fiscal Year

Annualized net sales per square foot (1) $ 694 $ 685

(1) Based on comparable stores for the full fiscal year.

Good Times restaurant sales increased $954,000 to $34,988,000 in fiscal 2023 from $34,034,000 in fiscal 2022. This increase is primarily due to menu price increases. Same store restaurant sales increased 3.7% during fiscal 2023 compared to fiscal 2022. This increase is primarily due to menu price increases, slightly offset by lower traffic. The average menu price increase in fiscal 2023 over fiscal 2022 was approximately 8.9%. Additionally, revenues for fiscal 2023 decreased by $47,000 in lower franchise revenues compared to fiscal 2022. Fiscal 2023 and fiscal 2022 for Good Times include franchise advertising contributions of $261,000 and $273,000, respectively.

Average Good Times restaurant sales for company-owned and joint venture restaurants open the entire 2023 and 2022 fiscal years were as follows:

Fiscal Year

During fiscal 2023, company-operated Good Times restaurants’ sales for restaurants that had been open a full eighteen months ranged from a low of $908,502 to a high of $2,426,689.

Food and Packaging Costs: For fiscal 2023, food and packaging costs decreased $967,000 to $42,910,000 (31.3% of restaurant sales) compared to $43,877,000 (32.0% of restaurant sales) in fiscal 2022.

Bad Daddy’s food and packaging costs were $31,972,000 (31.3% of restaurant sales) in fiscal 2023, down from $33,155,000 (32.1% of restaurant sales) in fiscal 2022. This decrease is primarily attributable to a combination of lower restaurant sales during the current fiscal year versus the prior fiscal year and lower purchase prices for food and paper goods. The decrease, as a percent of sales, is attributable to the impact of a 4.4% average annual increase in menu pricing as well as generally lower purchase prices in our commodity basket compared to the prior-year period.

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Good Times food and packaging costs were $10,938,000 (31.3% of restaurant sales) in fiscal 2023, up from $10,722,000 (31.5% of restaurant sales) in fiscal 2022. This increase is primarily attributable to the impact of higher sales and higher purchase prices on food and paper goods, partially offset by the impact of an 8.9% increase in menu pricing.

Payroll and Other Employee Benefit Costs: For fiscal 2023, payroll and other employee benefit costs increased $1,034,000 to $47,549,000 (34.6% of restaurant sales) compared to $46,515,000 (33.9% of restaurant sales) in fiscal 2022.

Bad Daddy’s payroll and other employee benefit costs were $35,892,000 (35.1% of restaurant sales) for fiscal 2023, up from $35,085,000 (34.0% of restaurant sales) in fiscal 2022. The $807,000 increase is primarily attributable to higher average pay rates. As a percent of sales, payroll and employee benefits costs increased by 1.1% primarily attributable to higher average wage rates paid to attract qualified employees and higher levels of management staffing.

Good Timespayroll and other employee benefit costs were $11,657,000 (33.3% of restaurant sales) in fiscal 2023, up from $11,430,000 (33.6% of restaurant sales) in fiscal 2022. The $227,000 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 0.3% in fiscal 2023 compared to fiscal 2022. This decrease was primarily attributable to an 8.9% increase in menu pricing, mostly offset by increased wage rates.

Occupancy Costs: Occupancy costs include rent, real and personal property taxes, common area maintenance expenses, licenses and insurance expense. For fiscal 2023, occupancy costs increased $167,000 from $9,440,000 (6.9% of restaurant sales) in fiscal 2022 to $9,607,000 (7.0% of restaurant sales).

Bad Daddy’s occupancy costs were $6,642,000 (6.5% of restaurant sales) for fiscal 2023, down from $6,668,000 (6.5% of restaurant sales) in fiscal 2022.

Good Times occupancy costs were $2,965,000 (8.5% of restaurant sales) in fiscal 2023, up from $2,772,000 (8.1% of restaurant sales) in fiscal 2022. The increase was primarily attributable to increased property and liability insurance costs.

Other Operating Costs: For fiscal 2023, other operating costs increased $498,000 to $19,013,000 (13.9% of restaurant sales) up from $18,515,000 (13.5% of restaurant sales) in fiscal 2022.

Bad Daddy’s other operating costs were $14,834,000 (14.5% of restaurant sales) for fiscal 2023, up from $14,519,000 (14.1% of restaurant sales) in fiscal 2022. The $315,000 increase was attributable to higher utility and repair and maintenance expenses, as well as increased customer delivery fees, offset by reduced technology-related expenses.

Good Times other operating costs were $4,179,000 (11.9% of restaurant sales) in fiscal 2023, up from $3,996,000 (11.7% of restaurant sales) in fiscal 2022. The increase was primarily attributable to increases in commissions paid to delivery service providers due to increases in overall delivery sales, higher utility expenses, and general price inflation in operating supplies costs, offset by decreased repair and maintenance and technology-related expenses.

New Store Preopening Costs: For fiscal 2023, we incurred $484,000 of preopening costs compared to $51,000 in fiscal 2022. The preopening costs in the current fiscal year are primarily related to one new Bad Daddy’s restaurant opened in the fourth quarter and to the closure and remodel of the previously franchisee-owned Bad Daddy’s during the second and third fiscal quarters. Preopening costs in the prior fiscal year were primarily attributable to one restaurant that was purchased from a franchisee in the second quarter of fiscal 2022. Preopening costs typically occur over a period of approximately five months and we expect to spend approximately $300,000 to $400,000 per location depending upon specific factors associated with the opening.

Depreciation and Amortization Costs: Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights and leasehold interests. For fiscal 2023, depreciation and amortization costs decreased $232,000 to $3,663,000 compared to $3,895,000 in fiscal 2022. The decreases at both concepts are due to assets performing past their estimated usable lives and the prior-year impairment of assets, partially offset by new asset additions in existing restaurants.

Bad Daddy’s depreciation costs decreased $174,000 from $3,234,000 in fiscal 2022 to $3,060,000 in fiscal 2023.

Good Timesdepreciation costs decreased $58,000 from $661,000 in fiscal 2022 to $603,000 in fiscal 2023.

General and Administrative Costs: General and administrative costs include all corporate and administrative functions. Components of this category include accounting and administrative costs, regional and franchise support salaries and benefits; professional and consulting fees; travel; corporate information systems; training; board of directors’ expenses; office rent; and legal expenses. For fiscal 2023, general and administrative costs decreased $1,379,000 from $10,506,000 (7.6% of total revenue) in fiscal 2022 to $9,127,000 (6.6% of total revenue) in fiscal 2023.

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The $1,379,000 decrease in general and administrative expenses in fiscal 2023 is primarily attributable to:

● Decrease of $184,000 related to office lease and equipment expenses

● Decrease of $119,000 related to incentive stock compensation

● Increase of $392,000 related to regional and multi-unit supervision

● Increase of $397,000 related to technology-related expenses

● Increase of $34,000 in general travel-related expenses

● Net decreases in all other expenses of $159,000

We expect general and administrative costs to continue to increase slightly from fiscal 2023 to fiscal 2024 due to increased insurance and health costs, and as we make investments in new human resource and financial management systems.

Advertising Costs: For fiscal 2023, advertising costs increased $94,000 from $3,164,000 (2.3% of total revenues) in fiscal 2022 to $3,258,000 (2.4% of total revenues) in fiscal 2023.

Bad Daddy’s advertising costs increased $39,000 from $1,827,000 (1.8% of total revenues) in fiscal 2022 to $1,866,000 (1.8% of total revenues) in fiscal 2023. 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 menu development, printing costs, local store marketing and social media. All restaurants contribute to an advertising materials fund based on a percentage of restaurant sales. The prior year includes advertising costs of $9,000 associated with franchise advertising contributions.

We anticipate that in fiscal 2024, Bad Daddy’s advertising costs as a percentage of total revenues will remain consistent with fiscal 2023.

Good Times advertising costs increased $55,000 from $1,337,000 (3.9% of total revenues) in fiscal 2022 to $1,392,000 (3.9% of total revenues) in fiscal 2023. The increase is primarily due to increased gift card related expenses. Good Times advertising costs consist 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 radio advertising, social media, on-site and point-of-purchase materials. 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.

We anticipate that in fiscal 2024 Good Times advertising costs as a percentage of net revenues will remain relatively stable, between approximately 3.5% and 4.0%.

Gain or Loss on Restaurant Asset Disposals: For fiscal 2023, the gain on restaurant asset disposals was $41,000 compared to a gain of $676,000 in fiscal 2022. The gain in both fiscal 2023 and 2022 is primarily comprised of a deferred gain on previous sale lease-back transactions related to two Good Times restaurants, and additionally in 2022 to the termination of a lease of a Good Times restaurant.

Long-lived Asset Impairment Charges: For fiscal 2023, the asset impairment charge was $1,589,000 compared to $3,437,000 in fiscal 2022. We review long-lived assets and intangibles subject to amortization for impairment when there are factors that indicate the carrying value of such assets may not be recoverable. During fiscal 2023 we recorded non-cash charges of $1,519,000 and $70,000 related to four Bad Daddy’s locations and two Good Times locations, respectively. During fiscal 2022 we recorded non-cash charges of $2,647,000 and $790,000 related to two Bad Daddy’s locations and three Good Times restaurants, respectively.

Litigation Contingencies: The Company did not record any changes in litigation contingencies in fiscal 2023. The Company recorded a contingent loss of $332,000 in fiscal 2022 related to in-process litigation.

Income (Loss) from Operations: Income from operations was $963,000 in fiscal 2023 compared to loss from operations of $878,000 in fiscal 2022.

The change from fiscal 2022 to fiscal 2023 was primarily attributable to a decrease in general and administrative costs and a decrease in asset impairment costs, offset by increases in restaurant operating costs.

Interest Expense. Interest expense was $78,000 during fiscal 2023, primarily related to the amortization of loan initiation fees, compared with $54,000 during fiscal 2022.

Provision for Income Taxes.Provision for income taxes was a $10,787,000 benefit for fiscal 2023, compared to $5,000 benefit for fiscal 2022. This most significant driver of this provision was the release of the valuation allowance previously assessed on the deferred tax assets. See Note 7 to the Consolidated Financial Statements included in this report for further information.

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Net (Loss) Income: Net income for fiscal 2023 was $11,672,000 compared to net loss of $927,000 in fiscal 2022. The change from fiscal 2022 to fiscal 2023 was primarily attributable to the matters discussed in the relevant sections above.

Income Attributable to Non-Controlling Interests: For fiscal 2023, the income attributable to non-controlling interests was $586,000 compared to $1,714,000 in fiscal 2022. The non-controlling interest represents the limited partner’s share of income in the Good Times and Bad Daddy’s joint-venture restaurants. $219,000 of the current year income is attributable to the Bad Daddy’s joint-venture restaurants, compared to $1,185,000 in the prior year. This reduction is primarily due to the acquisition by the Company during January of the interests in the limited liability companies held by non-controlling parties. $367,000 of the current year income is attributable to the Good Times joint-venture restaurants, compared to $529,000 in the prior year, such reduction is primarily due to reduced 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, adjusted for non-cash stock-based compensation expense, preopening expense, non-recurring acquisition costs, U.S. Generally Accepted Accounting Principles (“GAAP”) rent in excess of cash rent, non-cash disposal of assets and non-cash asset impairment charges. 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 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 supplementary measure. You should review the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

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The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA (in thousands):

Fiscal Year

Net (loss) income, as reported $ 11,086 $ (2,641 )

Depreciation and amortization (a) 3,617 3,796

Provision for income taxes (10,787 ) (5 )

Interest expense, net 78 54

Preopening expense (a) (1) 484 51

Non-cash stock-based compensation (2) 131 250

GAAP rent – cash rent difference (3) (666 ) (403 )

Gain on disposal of assets (4) (41 ) (538 )

One-time special allocation to Bad Daddy’s partnerships - 516

Litigation Contingencies - 332

Depreciation and amortization, preopening expense, asset impairment charge, 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 September 26, 2023, we had a working capital deficit of $8,297,000. 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 2023. We anticipate any commitments in fiscal 2024 will be funded out of existing cash or future borrowings against the Cadence Credit Facility.

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 under the Cadence Credit Facility 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.

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As of September 26, 2023 the interest rate applicable to borrowings under the Cadence Credit Facility was 8.42%.

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 September 26, 2023, the unamortized balance of these fees was $122,000.

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 September 26, 2023, there were $750,000 of borrowings against the facility, all of which is due during the fiscal year ending September 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 September 26, 2023, there were approximately $10,000 in outstanding letters of credit issued under the facility, and approximately $7,240,000 of committed funds available.

Total interest expense on notes payable was $31,000 and $20,000 for fiscal 2023 and 2022, respectively.

Cash Flows: Net cash provided by operating activities was $7,965,000 for fiscal 2023 compared to net cash provided by operating activities of $5,291,000 in fiscal 2022. The net cash provided by operating activities for fiscal 2023 was the result of net income of $11,672,000 offset by non-cash reconciling items totaling ($3,707,000). These reconciling items are comprised of 1) depreciation and amortization of general assets of $3,752,000, 2) a decrease in the recognition of deferred gain on sale of buildings of $37,000, 3) gain on asset disposals of $4,000, 4) impairment of long-lived assets of $1,589,000, 5) stock-based compensation expense of $131,000, 6) a decrease in receivables and other assets of $466,000, 7) a decrease in deferred liabilities and accrued expenses of $353,000, 8) an increase in accounts payable of $1,866,000, 9) a net decrease in amounts related to our operating leases of $327,000, and 10) a provision for income taxes of $10,790,000.

Net cash used in investing activities in fiscal 2023 was $10,443,000 compared to net cash used in investing activities of $2,624,000 in fiscal 2022. Fiscal 2023 activity primarily reflects the purchases of property and equipment of $4,771,000, the $4,394,000 purchase of non-controlling interests in subsidiaries, as well as acquisitions of restaurants from franchisees of $1,326,000. Purchases of property and equipment were comprised of the following:

● $1,915,000 for construction of one new Bad Daddy’s restaurant;

● $588,000 for remodels of two Bad Daddy’s restaurants;

● $1,097,000 for Good Times menu board and signage projects;

● $205,000 for remodels of four Good Times restaurants;

Net cash used in financing activities in fiscal 2023 was $2,246,000 compared to net cash provided by financing activities of $2,617,000 in fiscal 2022. The fiscal 2023 activity is comprised of the purchase of treasury stock equal to $2,274,000, borrowings from notes payable of $750,000, restricted stock vesting settled in cash of $92,000, proceeds from the exercise of stock options equal to $5,000, and net distributions to non-controlling interests of $635,000.

Contingencies and Off-Balance Sheet Arrangements: 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.

Critical Accounting Policies and Estimates: Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in Note 1 to our Consolidated Financial Statements. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. The following is a description of what we consider to be our most significant accounting policies.

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

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. During the fiscal year ended September 26, 2023, the Company had income of $23,000 related to contingent rent adjustments.

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.

Employee Medical Plans: We sponsor health and welfare plans that provide medical insurance benefits to certain of our employees. We partially self-insure against claims made by participants in this plan and maintain coverage above a certain threshold for claims against individual claimants within a plan year (the “stop loss limit”). Prior to each plan year, we underwrite the plans based upon their then-current membership and estimate aggregate claims costs for the next plan year for each plan on a per-member average basis. Estimated costs (net of any employee contribution) are recognized as part of restaurant labor for restaurant employees. Estimated costs (net of any employee contribution) for non-restaurant employees are recognized as part of General and Administrative expenses. During the year, we periodically review claims costs against estimates made prior to the inception of the plan year. Significant differences between actual and estimated claims activity (“underwriting losses” or “underwriting gains”) are recognized as part of General and Administrative expenses. Due to the relatively small number of members in the plans, should we have a significant number of members with high-cost claims in any given year, we may experience significant underwriting losses.

Non-controlling Interests: Non-controlling interests are presented as a separate item in the equity section of the consolidated balance sheet. Consolidated net income or loss attributable to non-controlling interests are presented on the face of the consolidated statement of operations. Additionally, changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions, and that deconsolidation of a subsidiary is recorded as a gain or loss based on the fair value on the deconsolidation date.

Income Taxes: We account for income taxes under 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. We provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. We continually review the realizability of our deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. We assessed whether a valuation allowance should be recorded against our deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard. In assessing the need for a valuation allowance, we considered both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Future sources of taxable income were also considered in determining the amount of the recorded valuation allowance. Based on our review of this evidence, we determined that a full valuation allowance against all of our deferred tax assets was appropriate. As we increase earnings and utilize deferred tax assets in the future, it is possible the valuation allowance could be reduced or eliminated.

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The Company is subject to U.S. federal income tax and income tax in multiple U.S. state jurisdictions. The Company’s tax years corresponding to the Company’s fiscal years 2020 through 2022 remain open for examination by the authorities under the normal three-year statute of limitations. Should the Company utilize any of its U.S. or state NOLs, the tax year to which the original loss relates will remain open to examination. The Company believes that its income tax filings 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. We have accrued $0 for interest and penalties as of September 26, 2023.

Recent Accounting Pronouncements

The information contained in Note 1 to our Consolidated Financial Statements included in this report concerning a description of recent accounting pronouncements, including our expected dates of adoption and the estimated effects on our results of operations and financial condition, is incorporated by reference herein.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of the independent registered public accounting firm and financial statements listed in the accompanying index are included in Item 15 of this report. See index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K.

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), the Company’s Chief Executive Officer (its principal executive officer and principal financial officer) has concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Report on Internal Control Over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). We maintain a system of internal controls that is designed to provide reasonable assurance in a cost-effective manner as to the fair and reliable preparation and presentation of the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 26, 2023. In making this evaluation, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). This evaluation included a review of the documentation of controls, evaluation of the design effectiveness of controls and a conclusion on this evaluation. Based on this assessment, our management concluded that, as of September 26, 2023, the Company’s internal control over financial reporting was effective based on these criteria.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

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 year ended September 26, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s fourth quarter for the fiscal year internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION

Nothing to report.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

We will file a definitive proxy statement for our 2024 Annual Meeting of Shareholders with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 is hereby incorporated by reference from our definitive proxy statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year covered by this Form 10-K.

Board Diversity

Under Nasdaq Rule 5605(f) Nasdaq-listed companies are required, subject to certain exceptions, (1) to have at least one director who self-identifies as a female, and (2) to have at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (3) to explain why the reporting company does not have at least two directors on its board who self-identify in the categories listed above. Under Nasdaq Rule 5605(f)(2)(D), boards of directors composed of five or fewer members must have one director who is Diverse as defined by the Rule and are not subject to the requirements of subparagraphs (A), (B), and (C) of Rule 5605(f)(2) until and unless they expand the board beyond five members.

In addition, Nasdaq Rule 5606 (Board Diversity Disclosure) requires each Nasdaq-listed company, again subject to certain exceptions, to provide statistical information about such company’s Board of Directors, in a specified format, related to each director’s self-identified gender, race, and self-identification as LGBTQ+. This matrix is presented below. The Company believes it is in compliance with the diversity requirements imposed by the Nasdaq listing rules.

Board Diversity Matrix (as of December 14, 2023*):

Board Size:

Total Number of Directors 4

Gender:

Male Female Non- Binary Gender Undisclosed

Number of directors based on gender identity 3 1 - -

Number of directors who identify in any of the categories below:

African American or Black - - - -

Alaskan Native or American Indian - - - -

Asian - - - -

Hispanic or Latinx - - - -

Native Hawaiian or Pacific Islander - - - -

White 3 1 - -

Two or More Races or Ethnicities - - - -

LGBTQ+ -

Undisclosed -

*The only change to this information from our last reported Board Diversity Matrix (available in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2022 as filed with the SEC on December 15, 2022) is that Geoffrey R. Bailey retired as member of the Board effective September 7, 2023.

Item 11. EXECUTIVE COMPENSATION

The information required by Item 11 is hereby incorporated by reference from our definitive proxy statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year covered by this Form 10-K.

The information required by Item 12 is hereby incorporated by reference from our definitive proxy statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year covered by this Form 10-K.

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The information required by Item 13 is hereby incorporated by reference from our definitive proxy statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year covered by this Form 10-K.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is hereby incorporated by reference from our definitive proxy statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year covered by this Form 10-K.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

1) Financial Statements

2) Financial Statement Schedules

3) Exhibits

The following exhibits are furnished as part of this report:

Exhibit Description

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4.2* Description of Securities

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21.1* Subsidiaries of the Company

23.1* Consent of Moss Adams LLP, Independent Registered Public Accounting Firm

97.1* Good Times Restaurants Inc. Clawback Policy as adopted on November 9, 2023

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

+ Indicates management compensatory plan, contract, or arrangement.

(P) Paper exhibit.

Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GOOD TIMES RESTAURANTS INC.

Ryan M. Zink Chief Executive Officer

(Principal Executive Officer)

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Ryan M. Zink

Ryan M. Zink, Principal Executive Officer and Director

/s/ Charles Jobson

Charles Jobson, Director

/s/ Jason S. Maceda

Jason S. Maceda, Director

/s/ Jennifer C. Stetson

Jennifer C. Stetson, Director

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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

PAGE

Report of Independent Registered Public Accounting Firm (PCAOB ID 659) F-2

Consolidated Balance Sheets – September 26, 2023 and September 27, 2022 F-3

Notes to Consolidated Financial Statements F-7

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Good Times Restaurants Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Good Times Restaurants Inc. and Subsidiaries (the “Company”) as of September 26, 2023 and September 27, 2022, the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 26, 2023 and September 27, 2022, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits providea reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Provision for Income Taxes and Valuation Allowance

As described in Notes 1 and 7 to the consolidated financial statements, the Company recognizes a provision for income tax benefits (expenses) and records deferred income tax assets and liabilities on its balance sheet. These amounts are determined by calculating accumulated temporary differences in book and taxable income, and carryforwards of losses. Valuation allowances are established, when necessary, to reduce net deferred income tax assets to the expected future realizable amount determined by management.

The expected future realization of deferred tax assets depends on the existence of sufficient taxable income within the carryback or carryforward period of the appropriate character under relevant tax laws. Sources of taxable income include future reversals of deferred tax assets and liabilities, future taxable income (exclusive of the reversals of deferred tax assets and liabilities), and taxable income in prior carryback year(s) if permitted under the tax law and consistent with the Company’s tax planning.

During, and as of the fiscal year ended September 26, 2023, the Company concluded it is more likely than not that the Company will realize its net deferred income tax assets, which resulted in the release of its existing valuation allowance. As a result, a provision for income taxes benefit of $10,787,000 was recognized during the fiscal year, with a resulting net deferred tax asset of $11,583,000 as of September 26, 2023.

We identified management’s determination of the release of the Company’s valuation allowance and resulting impact to the provision for income taxes, which involves estimates and significant judgments, as a critical audit matter. Management’s primary estimate in determining a valuation allowance is the projection of future sources of taxable income. Auditing management’s estimate of future sources of taxable income, which affects the recorded valuation allowances, required a higher degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists.

/s/ Moss Adams LLP

Denver, Colorado

December 14, 2023

We have served as the Company’s auditor since 2017.

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Good Times Restaurants Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents $ 4,182 $ 8,906

Prepaid expenses and other 235 888

PROPERTY AND EQUIPMENT

Less accumulated depreciation and amortization (53,917 ) (48,989 )

OTHER ASSETS:

Operating lease right-of-use assets, net 39,935 42,463

Deferred tax assets, net 11,583 -

Deposits and other assets 292 166

Other intangibles, net 36 20

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Deferred income 67 48

Operating lease liabilities, current 5,787 5,430

LONG-TERM LIABILITIES:

Maturities of long-term debt, net of current portion 750 -

Operating lease liabilities, net of current portion 42,332 45,544

Deferred and other liabilities 122 159

COMMITMENTS AND CONTINGENCIES (Note 5)

SHAREHOLDERS’&NBSP;EQUITY:

Good Times Restaurants Inc. shareholders’ equity:

Capital contributed in excess of par value 56,701 59,427

Total Good Times Restaurants Inc. shareholders' equity 32,571 26,485

TOTAL LIABILITIES AND SHAREHOLDERS’&NBSP;EQUITY $ 91,088 $ 86,388

See accompanying notes to consolidated financial statements

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Good Times Restaurants Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share and per share data)

Fiscal Year

(52 Weeks) (52 Weeks)

NET REVENUES:

RESTAURANT OPERATING COSTS:

Payroll and other employee benefit costs 47,549 46,515

Depreciation and amortization 3,663 3,895

Impairment of long-lived assets 1,589 3,437

Gain on restaurant and equipment asset sales (41 ) (676 )

Litigation Contingencies - 332

INCOME (LOSS) FROM OPERATIONS 963 (878 )

OTHER INCOME (EXPENSES):

Interest expense (78 ) (54 )

NET INCOME (LOSS) BEFORE INCOME TAXES 885 (932 )

Provision for income taxes 10,787 5

Income attributable to non-controlling interests (586 ) (1,714 )

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 11,086 $ (2,641 )

NET INCOME (LOSS) PER SHARE, ATTRIBUTABLE TO COMMON SHAREHOLDERS:

Diluted $ .94 $ (.21 )

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

See accompanying notes to consolidated financial statements

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Good Times Restaurants Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

For the Period from September 28, 2021 thru September 26, 2023

(In thousands, except share and per share data)

Treasury Stock, Capital Non-

at cost Common Stock Contributed Controlling

Issued Par in Excess of Par Interest In Accumulated

Shares Amount Shares Value Value Partnerships Deficit Total

Stock-based compensation cost - - - - 250 - - 250

Shares issued through common stock grants and RSU vesting - - 22,622 - - - - -

Income attributable to non-controlling interests - - - - - 1,714 - 1,714

Distributions to unrelated limited partners - - - - - (1,568 ) - (1,568 )

Contributions from unrelated limited partners - - - - - 33 - 33

Stock-based compensation cost - - - - 131 - - 131

Stock option exercise - - 2,000 - 5 - - 5

Income attributable to non-controlling interests - - - - - 586 - 586

Distributions to unrelated limited partners - - - - - (648 ) - (648 )

Contributions from unrelated limited partners - - - - - 13 - 13

Purchase of non-controlling interests - - - - (2,770 ) (831 ) - (3,601 )

See accompanying notes to consolidated financial statements

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Good Times Restaurants Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Fiscal Year

(52 Weeks) (52 Weeks)

CASH FLOWS FROM OPERATING ACTIVITIES:

Depreciation and amortization 3,752 4,057

Net change in ROU assets and operating lease liabilities (327 ) (428 )

Recognition of deferred gain on sale of restaurant building (37 ) (34 )

Gain on asset disposals (4 ) -

Gain on lease termination - (642 )

Impairment of long-lived assets 1,589 3,437

Stock based compensation expense 131 250

Provision for income taxes (10,790 ) (5 )

Changes in operating assets and liabilities:

(Increase) decrease in:

Receivables and prepaids 582 (293 )

Inventories (5 ) (64 )

Deposits and other assets (111 ) 79

(Decrease) increase in:

Deferred liabilities 19 -

Accrued and other liabilities (372 ) 515

Net cash provided by operating activities 7,965 5,291

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments for the purchase of property and equipment (4,771 ) (2,641 )

Payments for the purchase of non-controlling interests (4,394 ) -

Proceeds from sale of fixed assets 48 -

Proceeds from lease termination - 745

Net cash used in investing activities (10,443 ) (2,624 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from notes payable, capital leases, and long‐term debt 750 -

Payment for the purchase of treasury stock (2,274 ) (1,026 )

Payment for restricted stock vesting settled in cash (92 ) -

Proceeds from stock option exercises 5 156

Contributions from non-controlling interests 13 33

Distributions to non-controlling interests (648 ) (1,780 )

Net cash used in provided by financing activities (2,246 ) (2,617 )

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,724 ) 50

CASH AND CASH EQUIVALENTS, beginning of year 8,906 8,856

CASH AND CASH EQUIVALENTS, end of year $ 4,182 $ 8,906

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest $ 31 $ 20

Non-cash additions of property and equipment $ 91 $ (214 )

See accompanying notes to consolidated financial statements

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Good Times Restaurants Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.Organization and Summary of Significant Accounting Policies

Organization – Good Times Restaurants Inc. (Good Times or the Company) is a Nevada corporation. The Company operates through its wholly owned subsidiaries Good Times Drive Thru, Inc. (“Drive Thru”), BD of Colorado, LLC (“BDCO”), Bad Daddy’s Franchise Development, LLC (“BDFD”), and Bad Daddy’s International, LLC (“BDI”).

BDCO 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 September 26, 2023, operates forty company-owned, and one licensee full-service small-box casual dining restaurants under the name Bad Daddy’s Burger Bar, primarily located in the Southeast region of the United States and the state of Colorado 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 September 26, 2023, operates nineteen Company-owned and six 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 six franchisee-owned restaurants, with four operating in Colorado and two in Wyoming.

We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as the “FASB”. The FASB sets Generally Accepted Accounting Principles (“GAAP”) that we follow to ensure we consistently report our financial condition, results of operations, and cash flows.

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 comprise 13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks. Fiscal year 2023 began September 28, 2022 and ended September 26, 2023. Fiscal 2022 began September 29, 2021 and ended September 27, 2022.

Principles of Consolidation – The consolidated financial statements include the accounts of Good Times, its subsidiaries, one limited partnership in which the Company exercises control through Drive Thru, the partnership’s general partner, and five limited liability companies, in which the Company is the sole owner following the purchase of the membership interests in January 2023. The Company owns an approximate 50% interest in the Drive Thru limited partnership, is the sole general partner, and receives a management fee prior to any distributions to the limited partner. Because the Company owns an approximate 50% interest in the partnership and exercises complete management control over all decisions for the partnership, except for certain veto rights, the financial statements of the partnership are consolidated into the Company’s consolidated financial statements. The Company owns 100% interest in five Bad Daddy’s limited liability companies, following the January 2023 purchase of the membership interests in the previously joint-venture restaurants. Prior to the purchase, the Company owned between 23% and 75% interest in the limited liability companies, was the managing member of each, and received royalty and management fees prior to any distributions to the other members. Because the Company exercised complete management control over all decisions for the five companies, except for certain veto rights, the financial statements of the limited liability companies were and are consolidated into the Company’s financial statements. The equity interests of the unrelated limited partner and former members are shown on the accompanying consolidated balance sheets in the shareholders’ 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 distributions to the limited partners and members for the period. The limited partners’ or members’ share of the net income or loss in the entities is shown as non-controlling interest income or expense in the accompanying consolidated statements of operations. All inter-company accounts and transactions are eliminated in consolidation.

Advertising Costs – We use Advertising Funds to administer certain advertising programs for both the Bad Daddy’s and Good Times brands that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to the fund. As such 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. We intend to utilize all of the advertising contributions towards advertising expenditures; however, the timing of those expenditures may not occur in the year in which the advertising funds were collected. Historically we have returned to our franchisees excess advertising funds collected from them, however beginning in the current year have retained those funds to be used in future years and to better manage the cash flow of the advertising fund and recognized as a reduction of advertising expenses. Contributions to the Advertising Funds from our franchisees were $261,000 and $273,000 for the fiscal years ended September 26, 2023 and September 27, 2022, respectively.

Accounting Estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates of and assumptions related to the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Examples include valuation of reporting units for purposes of assessing goodwill and other indefinite-lived intangible assets for impairment, valuation of asset groups for impairment testing, accruals for employee benefits, and certain contingencies. We base our estimates on historical experience, market participant fair value considerations, projected future cash flows, and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

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Cash and Cash Equivalents – The Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. The Company maintains cash and cash equivalents at financial institutions with balances that generally exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limits of up to $250,000. The Company has not experienced any losses related to such accounts and management believes that the Company is not exposed to any significant risks on these accounts.

Accounts Receivable – Accounts receivable include uncollateralized receivables from our franchisees, due in the normal course of business, generally requiring payment within thirty days of the invoice date. Additionally, accounts receivable include payments due from third-party delivery aggregators, and certain rebates from our key food and beverage vendors. Accounts receivables also include payments due from property landlords related to tenant improvement allowances, of which $272,000 were owed in in the fiscal year ended September 26, 2023. On a periodic basis the Company monitors all accounts for delinquency and provides for estimated losses of uncollectible accounts. There were no allowances for unrecoverable accounts receivable at September 26, 2023 and September 27, 2022.

Inventories – Inventories are stated at the lower of cost or net realizable value, determined by the first-in first-out method, and consist of restaurant food items and related packaging supplies.

Property and Equipment – Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, generally three to eight years. Leasehold improvements are amortized using the straight-line method over the shorter of the term of the lease or the estimated useful life of the asset.

Maintenance and repairs are charged to expense as incurred, and expenditures for major improvements are capitalized. When assets are retired, or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation with any resulting gain or loss credited or charged to income.

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. No trademark impairment charges were recognized during the fiscal years ended September 26, 2023 and September 27, 2022.

Reacquired franchise rights – Reacquired franchise rights represent the value of franchise rights purchased from prior franchisees. Franchise rights are amortized over the life of franchise agreement acquired. We evaluate the value of reacquired franchise rights annually and on an interim basis as events and circumstances warrant by comparing the fair value of the franchise rights with their carrying amount. No impairment charges associated with reacquired franchise rights were recognized during the fiscal years ended September 26, 2023 and September 27, 2022.

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.

The following table presents goodwill associated with each reporting unit as of September 26, 2023 and September 27, 2022 (in thousands):

Impairment of 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 judgment in the use of estimates and assumptions pertaining to future projections and operating results.

Given the results of our analyses throughout the fiscal year ended September 26, 2023, we identified two Bad Daddy’s restaurants where the expected future cash flows would not be sufficient to recover the carrying value of the associated assets, resulting in non-cash impairment charges of $1,589,000.

There were impairments of $3,437,000 in the fiscal year ended September 27, 2022. Of this amount, $790,000 related to three Good Times restaurants and $2,647,000 related to two Bad Daddy’s restaurants

Leases – The Company accounts for leases consistent with Accounting Standards Update (“ASU”) 2016-02,Leases (Topic 842).

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The Company assesses whether a contract qualifies as a lease at inception. The Company only held operating leases as of and during the years ended September 26, 2023 and September 27, 2022. 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.

Operating lease expense is recognized on a straight-line basis over the lease term. In certain situations, lease contracts are amended or otherwise changed. Based upon an analysis of those changes, specifically whether additional rights have been conveyed and additional lease payments are required, the Company determines whether the lease warrants remeasurement, or treatment as a separate contract. 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. The Company has four subleases in which the sublessee generally pays the master landlord directly. We disclose details of sublease income and its impact on operating lease expense in Note 6.

Deferred Liabilities – Deferred Liabilities consist primarily of long-term deferred income in the form of sale leaseback transactions and vendor signing incentives.

Revenue Recognition - Revenues consist primarily of sales from restaurant operations and franchise revenue, which includes franchisee royalties and contributions to advertising funds. Revenues associated with gift card breakage are immaterial to our financials. The Company recognizes revenue, pursuant to ASU 2014-09,Revenue from Contracts with Customers (Topic 606), 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 the gift card when it is redeemed and the performance obligation is completed, 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. Late in fiscal 2023, the Company began operating a loyalty program known as GT Rewards. With each purchase, GT Rewards members earn loyalty points that can be redeemed in the future for free products. Activity related to the new reward program is immaterial to the Company’s financial statements for the year ended September 26, 2023.

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.

Preopening Costs – Restaurant preopening costs are expensed as incurred.

Income Taxes – The Company accounts for income taxes using the asset/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.

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The Company is subject to taxation in various jurisdictions within the U.S. The Company’s tax years corresponding to the Company’s fiscal years 2020 through 2022 remain open for examination by the authorities under the normal three year statute of limitations. Should the Company utilize any of its U.S. or state NOLs, the tax year to which the original loss relates will remain open to examination. 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 September 26, 2023.

Net Income (Loss) Per Common Share – Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities for this calculation consist of in-the-money outstanding stock options, restricted stock units 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:

Effect of potentially dilutive securities:

Stock options 9,724 -

Restricted stock units 45,250 -

Excluded from diluted weighted-average shares outstanding:

Financial Instruments and Concentrations of Credit Risk – Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on- or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments with off-balance-sheet risk to the Company include lease liabilities whereby the Company is contingently liable as a guarantor of certain leases that were assigned to third parties in connection with various sales of restaurants to franchisees.

Financial instruments potentially subjecting the Company to concentrations of credit risk consist principally of receivables. The Company has other current receivables totaling $769,000 as of September 26, 2023. This includes $23,000 of franchise receivables, $269,000 of 3rd party delivery receivables, $185,000 of rebate receivables from our food and beverage vendors, $272,000 of lease incentives receivable, and $20,000 of other miscellaneous receivables.

The Company purchases most of its restaurant food and paper through a single distribution company. The Company believes a sufficient number of other distributors exist from which food and paper could be purchased to prevent any long-term, adverse consequences.

The Company operates in two industry segments, quick service restaurants and casual dining restaurants. A geographic concentration exists because the Company’s customers are generally located in Colorado and the Southeast region of the U.S., most significantly in North Carolina.

Stock-Based Compensation – 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). See Note 8 for additional information.

Fair Value of Financial Instruments – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs.

The following three levels of inputs may be used to measure fair value and require that the assets or liabilities carried at fair value are disclosed by the input level under which they were valued.

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

Our non-controlling interests currently consist of one limited partnership involving six Good Times restaurants in which the Company and non-controlling partner share equal ownership and previously included five limited liability companies involving five Bad Daddy’s restaurants. The Company repurchased the non-controlling membership interests in the five limited liability companies owning five Bad Daddy’s restaurants in January 2023.

Recent Accounting Pronouncements – 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.

2. Goodwill and Intangible Assets

The following table presents goodwill and intangible assets as of September 26, 2023 and September 27, 2022 (in thousands):

Intangible assets subject to amortization:

Non-compete agreements $ 50 $ (14 ) $ 36 $ 25 $ (5 ) $ 20

Reacquired franchise rights $ 15 $ - $ 15 $ - $ - $ -

Indefinite-lived intangible assets:

There were no impairments to intangible assets during the fiscal years ended September 26, 2023 or September 27, 2022. The aggregate amortization expense related to these intangible assets subject to amortization was $9,000 for the fiscal year ended September 26, 2023.

3. Notes Payable and Long-Term Debt

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 consisting 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.

As of September 26, 2023 the interest rate applicable to borrowings under the Cadence Credit Facility was 8.42%.

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 September 26, 2023 the unamortized balance of these fees was $122,000.

Good Times Restaurants Inc. GTIM US Equity

GTIM · 10-K · period ended 2023-09-26

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. MINE SAFETY DISCLOSURES

ITEM 6. [RESERVED]

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 11. EXECUTIVE COMPENSATION

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Item 16. Form 10-K Summary

Good Times Restaurants Inc. GTIM US Equity☆

GTIM · 10-K · period ended 2023-09-26

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. MINE SAFETY DISCLOSURES

ITEM 6. [RESERVED]

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 11. EXECUTIVE COMPENSATION

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Item 16. Form 10-K Summary

Good Times Restaurants Inc. GTIM US Equity