Basis of Presentation

3 Months Ended

Dec. 27, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Good Times Restaurants Inc. (the “Company”) and its wholly-owned subsidiaries as well as six partnerships in which the Company is the controlling partner. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company operates, and licenses full-service restaurants under the brand Bad Daddy’s Burger Bar that are primarily located in Colorado and in the Southeast region of the United States.

The Company operates and franchises drive-thru fast food hamburger restaurants under the brand Good Times Burgers & Frozen Custard, all of which are located in Colorado and Wyoming.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (“GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position of the Company as of December 27, 2022 and the results of its operations and its cash flows for the fiscal quarters ended December 27, 2022 and December 28, 2021. Operating results for the fiscal quarter ended December 27, 2022 are not necessarily indicative of the results that may be expected for the year ending September 26, 2023. The condensed consolidated balance sheet as of September 27, 2022 is derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles. As a result, these condensed consolidated financial statements should be read in conjunction with the Company's Form 10-K for the fiscal year ended September 27, 2022.

Fiscal Year – The Company’s fiscal year is a 52/53-week year ending on the last Tuesday of September. In a 52-week fiscal year, each of the Company’s quarterly periods consist of 13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks. The quarters ended December 27, 2022 and December 28, 2021 each consisted of 13 weeks.

Reclassification – Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on the net income (loss).

Advertising Costs – We utilize Advertising Funds to administer certain advertising programs for both the Bad Daddy’s and Good Times brands that benefit both us and our franchisees.   We and our franchisees are required to contribute a percentage of gross sales to the fund.  The contributions to these funds are designated and segregated for advertising. We consolidate the Advertising Funds into our financial statements whereby contributions from franchisees, when received, are recorded and included as a component of franchise revenues.  As we intend to utilize all of the advertising contributions towards advertising expenditures, we recognize costs equal to franchisee contributions to the advertising funds on a quarterly basis. Contributions to the Advertising Funds from our franchisees were $66,000 and $67,000 for the quarters ended December 27, 2022 and December 28, 2021, respectively.

Receivables – Our receivables typically consist of royalties and other fees due to us from independent franchisees of our brands as well as product rebates and other incentives due to us under agreements with our food and beverage vendors, and payments due to us for sales of gift cards to third party retailers. For the quarter ended December 27, 2022, total receivables were $1,119,000, which consists of $208,000 in receivables from large box retail partners, retailed receivables, $288,000 in rebate receivables, $319,000 in third party delivery receivables, and $304,000 of franchise and other receivables, compared to $2,350,000 for the quarter ended December 28, 2021, consisting primarily of $619,000 in receivables from large box retailers, $249,000 in rebate receivables, $243,000 in third party delivery receivables, $745,000 for a lease termination agreement entered in the quarter for one of our Good Times locations, - and $494,000 of franchise and other receivables.

Macro-Economic Factors and Operating Environment

The global crisis resulting from the spread of coronavirus (“COVID-19”) continued to our restaurant operations for the quarter ended December 27, 2022 although the impact was more modest than in the prior year. We expect local conditions to continue to dictate limitations on restaurant operations, capacity, and hours of operation. The lingering impacts of the pandemic have also contributed to labor challenges, which have increased hourly wages and management salaries at both concepts, and in limited cases have resulted in reduced operating hours at certain restaurants. Supply chain constraints have affected both of our concepts, resulting in higher food and beverage cost associated with general increases in input price levels as well as increased product substitutions, elevated freight costs, and increased variability in product quality, primarily in produce items. In addition, during the quarter ended December 27, 2022, high rates of inflation have been seen globally which have also resulted in increases in commodity, labor and energy costs for both concepts. Further significant increases in inflation could affect the global and U.S. economies, which could have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently to offset the effect of cost increases without negatively impacting consumer demand.

Although we conduct all of our restaurant operations within the USA, worldwide product supply chains have been impacted by the war in Ukraine. Specifically sunflower oil and wheat, which are fungible commodities, are used as ingredients in our raw materials and purchased by our suppliers, have significant supplies that typically originate in Ukraine. 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.