UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the quarterly period ended: | |
or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the transition period from to |
Commission File Number: 333-23323333-233233
BT BRANDS, INC. | |
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| |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) | |
|
| ||
405 Main Avenue West, Suite 2D, West Fargo, ND | 58078 | ||
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( | ||
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(307) 274-3055
(Registrant’s telephone number, including area code)
NONE
(Former name former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
| BTBD |
| The NASDAQ Stock Market LLC |
Warrant to Purchase Common Stock | BTBDW | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
Non-accelerated | ☒ | Smaller reporting company | ☒ | ||
|
| Emerging Growth Company | ☒ |
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant isany error corrections are restatements that required a shell company (as defined in Rule 12b-2recovery analysis of incentive-based compensation received by any of the Exchange Act)registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Yes ☒ No
At May 12, 2020,August 16, 2023, there were 8,095,0046,246,118 shares of common stock outstanding.
CAUTIONIONARYCAUTIONARY STATEMENT REGARDING RISKS
AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS
Forward-Looking Information
This quarterly report contains forward-looking statements about the business, financial condition and prospects of BT Brands, Inc. and its wholly ownedwholly-owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations, and future plans. Forward-looking statements can also be identified by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.
While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances that such expectations will prove to be accurate. Security holders are cautioned that such forward-looking statements involve risks and uncertainties. CertainYou should evaluate all forward-looking statements made in this report in the context of the factors that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to:
· | capital requirements and the availability of capital to fund our growth; | |
· | difficulties executing our growth strategy, including completing profitable acquisitions; | |
· | the impact of public health matters; | |
· | the risks of acquiring an existing restaurant business, including identifying a suitable target, completing comprehensive due diligence, the impact on our financial condition of any debt we may incur in acquiring the target, the ability to integrate the target’s operations with our existing operations, our ability to retain management and key employees of the target, among other factors relevant to acquisitions; | |
· | challenges related to hiring and retaining store employees at competitive wage rates; | |
· | our failure to prevent food safety and foodborne illness incidents; | |
· | shortages or interruptions in the supply or delivery of food products; | |
· | our dependence on a small number of suppliers and a single distribution company; | |
· | negative publicity relating to any one of our restaurants; | |
· | competition from other restaurant chains with significantly greater resources than we have; | |
· | changes in economic conditions, including the effects on consumer confidence and discretionary spending; | |
· | changes in consumer tastes and nutritional and dietary trends; | |
· | our inability to manage our growth; | |
· | our inability to maintain an adequate level of cash flow or access to capital to grow; | |
· | changes in management, loss of key personnel, and difficulty hiring and retaining skilled personnel; | |
· | labor shortages and increased labor costs; | |
· | our vulnerability to increased food, commodity, and energy costs; | |
· | the impact of governmental laws and regulations; | |
· | failure to obtain and maintain required licenses and permits to comply with food control regulations; | |
· | changes in economic conditions and adverse weather, and other unforeseen conditions, in regions where our restaurants are located; | |
· | inadequately protecting our intellectual property; | |
· | breaches of security of confidential consumer information; and | |
· | other factors discussed in the Company’s Annual Report on Form 10-K under “Business” and “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” |
2 |
We caution you that the factors referenced above may causenot contain all the important factors to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we update one or more forward-looking statements, no inference should be made that we will make additional updates regarding those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q, and 8-K, our Schedule 14A, our press releases and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable, any or all of the forward-looking statements may prove to be incorrect. This may occur due to inaccurate assumptions or due to known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q or other public communications that we might make as a representation by theus that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in this quarterly report. Such factors may include, without limitation, the risks, uncertainties and regulatory developments (1) related to the COVID-19 pandemic, which include risks and uncertainties related to the current unknown duration of the COVID-19 pandemic, the impact of governmental regulations that have been, and may in the future be, imposed in response to the pandemic, including regulations which could adversely affect the Company’s ability to continue to operate as an “essential business,” potential changes in consumer behavior and dining patterns, which could impact patronage at the Company’s restaurants, the potential effects of government stimulus packages, the deterioration in the economic conditions in the United States, which potentially could have an impact on discretionary consumer spending and (2) those discussed and described in the Company’s 2019 annual report on Form 10-Kour subsequent periodic reports filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2020. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.Commission.
TABLE OF CONTENTS
PART I— FINANCIAL INFORMATION. | 5 | |||
Table of Contents |
PART I — FINANCIAL INFORMATION
BT BRANDS, INC. AND SUBSIDIARYSUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
|
| March 29, 2020 |
|
| December 29, 2019 |
| ||
ASSETS |
| |||||||
CURRENT ASSETS |
|
|
|
|
|
| ||
Cash |
| $ | 310,134 |
|
| $ | 258,101 |
|
Receivables |
|
| 5,782 |
|
|
| 15,363 |
|
Inventory |
|
| 52,973 |
|
|
| 56,432 |
|
Prepaid expenses |
|
| 5,297 |
|
|
| 6,929 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 374,186 |
|
|
| 336,825 |
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net |
|
| 1,605,617 |
|
|
| 1,650,012 |
|
LAND AND BUILDINGS HELD FOR SALE |
|
| 449,244 |
|
|
| 449,244 |
|
INVESTMENT IN NOTES RECEIVABLE FROM RELATED COMPANY |
|
| 207,000 |
|
|
| 179,000 |
|
OTHER ASSETS, net |
|
| 18,034 |
|
|
| 18,459 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 2,654,081 |
|
| $ | 2,633,539 |
|
|
|
|
|
|
|
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|
LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
| $ | 243,784 |
|
| $ | 277,666 |
|
Accounts payable |
|
| 483,622 |
|
|
| 321,855 |
|
Accrued expenses |
|
| 179,083 |
|
|
| 202,732 |
|
Income taxes payable |
|
| 2,898 |
|
|
| 2,898 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 909,387 |
|
|
| 805,151 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, less current maturities |
|
| 3,254,808 |
|
|
| 3,221,035 |
|
UNEARNED VENDOR REBATE |
|
| 2,445 |
|
|
| 3,668 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 4,166,640 |
|
|
| 4,029,854 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 500,000 shares authorized, no shares outstanding at March 29, 2020 and December 29, 2019 |
|
| - |
|
|
| - |
|
Common stock, $.001 par value, 50,000,000 authorized, 8,095,004 shares outstanding at March 29, 2020 and December 29, 2019 |
|
| 8,095 |
|
|
| 8,095 |
|
Additional paid-in capital |
|
| 497,671 |
|
|
| 497,671 |
|
Accumulated deficit |
|
| (2,018,325 | ) |
|
| (1,902,081 | ) |
|
|
|
|
|
|
|
|
|
Total shareholders' deficit |
|
| (1,512,559 | ) |
|
| (1,396,315 | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' deficit |
| $ | 2,654,081 |
|
| $ | 2,633,539 |
|
|
| Unaudited |
|
|
| |||
|
| July 2, 2023 |
|
| January 1, 2023 |
| ||
ASSETS |
|
|
|
|
|
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CURRENT ASSETS |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 5,704,879 |
|
| $ | 2,150,578 |
|
Marketable securities |
|
| 1,233,796 |
|
|
| 5,994,295 |
|
Receivables |
|
| 35,412 |
|
|
| 76,948 |
|
Inventory |
|
| 191,206 |
|
|
| 158,351 |
|
Prepaid expenses and other current assets |
|
| 58,140 |
|
|
| 37,397 |
|
Assets held for sale |
|
| 258,751 |
|
|
| 446,524 |
|
Total current assets |
|
| 7,482,184 |
|
|
| 8,864,093 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET |
|
| 3,276,683 |
|
|
| 3,294,644 |
|
OPERATING LEASES RIGHT-OF-USE ASSETS |
|
| 1,890,044 |
|
|
| 2,004,673 |
|
INVESTMENTS |
|
| 1,224,837 |
|
|
| 1,369,186 |
|
DEFERRED INCOME TAXES |
|
| 143,000 |
|
|
| 61,000 |
|
GOODWILL |
|
| 671,220 |
|
|
| 671,220 |
|
INTANGIBLE ASSETS, NET |
|
| 411,713 |
|
|
| 453,978 |
|
OTHER ASSETS, NET |
|
| 50,052 |
|
|
| 50,903 |
|
Total assets |
|
|
|
|
|
|
|
|
|
| $ | 15,149,733 |
|
| $ | 16,769,697 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 639,226 |
|
| $ | 448,605 |
|
Broker margin loan |
|
| - |
|
|
| 791,370 |
|
Current maturities of long-term debt |
|
| 164,866 |
|
|
| 167,616 |
|
Current operating lease obligations |
|
| 286,114 |
|
|
| 193,430 |
|
Accrued expenses |
|
| 451,891 |
|
|
| 532,520 |
|
Total current liabilities |
|
| 1,542,097 |
|
|
| 2,133,541 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 2,374,705 |
|
|
| 2,658,477 |
|
NONCURRENT OPERATING LEASE OBLIGATIONS |
|
| 1,628,754 |
|
|
| 1,825,057 |
|
Total liabilities |
|
| 5,545,556 |
|
|
| 6,617,075 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 2,000,000 shares authorized, |
|
|
|
|
|
|
|
|
no shares outstanding at July 2, 2023 and January 1, 2023 |
|
| - |
|
|
| - |
|
Common stock, $0.002 par value, 50,000,000 authorized, 6,246,118 |
|
|
|
|
|
|
|
|
issued and outstanding at July 2, 2023 and 6,396,118 issued |
|
|
|
|
|
|
|
|
and outstanding at January 1, 2023, respectively |
|
| 12,492 |
|
|
| 12,792 |
|
Less cost of 215,000 and 65,000 common shares held in Treasury |
|
|
|
|
|
|
|
|
at July 2, 2023 and January 1, 2023, respectively |
|
| (356,807 | ) |
|
| (106,882 | ) |
Additional paid-in capital |
|
| 11,486,535 |
|
|
| 11,409,235 |
|
Accumulated deficit |
| (1,538,043 | ) |
|
| (1,162,523 | ) | |
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
| 9,604,177 |
|
|
| 10,152,622 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 15,149,733 |
|
| $ | 16,769,697 |
|
See Notes to Consolidated Condensed Consolidated Financial Statements (unaudited)
Table of Contents |
BT BRANDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
| 13 Weeks Ended, |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
|
|
|
|
|
|
| ||
SALES |
| $ | 1,303,430 |
|
| $ | 1,377,833 |
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 540,100 |
|
|
| 560,271 |
|
Labor costs |
|
| 483,309 |
|
|
| 486,245 |
|
Occupancy costs |
|
| 162,588 |
|
|
| 207,603 |
|
Other operating expenses |
|
| 86,174 |
|
|
| 64,612 |
|
Depreciation |
|
| 44,395 |
|
|
| 58,810 |
|
Amortization |
|
| 425 |
|
|
| 425 |
|
General and administrative |
|
| 66,216 |
|
|
| 127,784 |
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
| 1,383,207 |
|
|
| 1,505,750 |
|
Income (loss) from operations |
|
| (79,777 | ) |
|
| (129,177 | ) |
INTEREST EXPENSE |
|
| (36,467 | ) |
|
| (42,573 | ) |
INCOME (LOSS) BEFORE TAXES |
|
| (116,244 | ) |
|
| (170,490 | ) |
PROVISION FOR INCOME TAXES |
|
| - |
|
|
| - |
|
NET LOSS |
| $ | (116,244 | ) |
| $ | (170,490 | ) |
LOSS PER COMMON SHARE - Basic and Diluted |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
WEIGHTED AVERAGE SHARES USED IN |
|
|
|
|
|
|
|
|
COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted |
|
| 8,095,004 |
|
|
| 8,086,004 |
|
BT BRANDS, INC. AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited) | ||||||||||||||||
| ||||||||||||||||
|
| 26 Weeks Ended |
|
| 26 Weeks Ended, |
|
| 13 Weeks Ended, |
|
| 13 Weeks Ended, |
| ||||
|
| July 2, 2023 |
|
| July 3, 2022 |
|
| July 2, 2023 |
|
| July 3, 2023 |
| ||||
SALES |
| $ | 7,070,763 |
|
| $ | 5,598,076 |
|
| $ | 3,999,965 |
|
| $ | 3,524,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 2,898,498 |
|
|
| 2,032,956 |
|
|
| 1,608,175 |
|
|
| 1,311,373 |
|
Labor costs |
|
| 2,615,136 |
|
|
| 1,786,828 |
|
|
| 1,412,376 |
|
|
| 1,179,118 |
|
Occupancy costs |
|
| 505,861 |
|
|
| 435,920 |
|
|
| 148,736 |
|
|
| 261,282 |
|
Other operating expenses |
|
| 394,243 |
|
|
| 332,181 |
|
|
| 198,629 |
|
|
| 212,314 |
|
Depreciation and amortization expenses |
|
| 356,027 |
|
|
| 178,701 |
|
|
| 192,520 |
|
|
| 109,286 |
|
General and administrative expenses |
|
| 944,992 |
|
|
| 746,717 |
|
|
| 519,077 |
|
|
| 455,656 |
|
Gain on sale of assets |
|
| (313,688 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Total costs and expenses |
|
| 7,401,069 |
|
|
| 5,513,303 |
|
|
| 4,079,513 |
|
|
| 3,529,029 |
|
Income (loss) from operations |
|
| (330,306 | ) |
|
| 84,773 |
|
|
| (79,548 | ) |
|
| (4,148 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES |
|
| (23,064 | ) |
|
| (80,238 | ) |
|
| (92,919 | ) |
|
| (80,238 | ) |
INTEREST AND OTHER INCOME |
|
| 90,810 |
|
|
| 9,473 |
|
|
| 1,761 |
|
|
| 9,473 |
|
INTEREST EXPENSE |
|
| (49,909 | ) |
|
| (54,461 | ) |
|
| (24,376 | ) |
|
| (26,190 | ) |
EQUITY IN NET LOSS OF AFFILIATE |
|
| (145,050 | ) |
|
| (14,172 | ) |
|
| (90,651 | ) |
|
| (14,172 | ) |
LOSS BEFORE TAXES |
|
| (457,520 | ) |
|
| (54,625 | ) |
|
| (285,734 | ) |
|
| (115,275 | ) |
INCOME TAX BENEFIT |
|
| 82,000 |
|
|
| 5,000 |
|
|
| 52,000 |
|
|
| 23,000 |
|
NET LOSS |
| $ | (375,520 | ) |
| $ | (49,625 | ) |
| $ | (233,734 | ) |
| $ | (92,275 | ) |
NET LOSS PER COMMON SHARE - Basic and Diluted |
| $ | (0.06 | ) |
| $ | (0.01 | ) |
| $ | (0.04 | ) |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted |
|
| 6,261,631 |
|
|
| 6,458,276 |
|
|
| 6,246,114 |
|
|
| 6,461,118 |
|
See Notes to Consolidated Condensed Consolidated Financial Statements (Unaudited)
Table of Contents |
BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
BT BRANDS, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
For the 26-week periods- |
|
|
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Treasury |
|
|
|
| ||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Deficit) |
|
| Stock |
|
| Total |
| ||||||
Balances, January 1, 2023 |
|
| 6,396,118 |
|
| $ | 12,792 |
|
| $ | 11,409,235 |
|
| $ | (1,162,523 | ) |
| $ | (106,882 | ) |
| $ | 10,152,622 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 77,300 |
|
|
| - |
|
|
| - |
|
|
| 77,300 |
|
Treasury stock purchase |
|
| (150,000 | ) |
|
| (300 | ) |
|
|
|
|
|
| - |
|
|
| (249,925 | ) |
|
| (250,225 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (375,520 | ) |
|
| - |
|
|
| (375,520 | ) |
Balances, July 2, 2023 |
|
| 6,246,118 |
|
| $ | 12,492 |
|
| $ | 11,486,535 |
|
| $ | (1,538,043 | ) |
| $ | (356,807 | ) |
| $ | 9,604,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 2, 2022 |
|
| 6,447,506 |
|
| $ | 12,895 |
|
| $ | 11,215,696 |
|
| $ | (600,238 | ) |
| $ | - |
|
| $ | 10,628,353 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 73,400 |
|
|
| - |
|
|
| - |
|
|
| 73,400 |
|
Shares issued in exercise of warrants |
|
| 13,612 |
|
|
| 27 |
|
|
| 74,839 |
|
|
| - |
|
|
| - |
|
|
| 74,866 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (49,625 | ) |
|
| - |
|
|
| (49,625 | ) |
Balances, July 3, 2022 |
|
| 6,461,118 |
|
| $ | 12,922 |
|
| $ | 11,363,935 |
|
| $ | (649,863 | ) |
| $ | - |
|
| $ | 10,726,994 |
|
|
|
|
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Paid-in Capital |
|
| (Deficit) |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balances, December 30, 2018 |
|
| 8,086,004 |
|
| $ | 8,086 |
|
| $ | 484,180 |
|
| $ | (1,533,504 | ) |
| $ | (1,041,238 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (170,490 | ) |
|
| (170,490 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2019 |
|
| 8,086,004 |
|
| $ | 8,086 |
|
| $ | 484,180 |
|
| $ | (1,703,994 | ) |
| $ | (1,211,728 | ) |
For the 13-week periods- |
|
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Treasury |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Deficit) |
|
| Stock |
|
| Total |
| ||||||
Balances, April 2, 2023 |
|
| 6,246,118 |
|
| $ | 12,492 |
|
| $ | 11,445,135 |
|
| $ | (1,304,309 | ) |
| $ | (356,807 | ) |
| $ | 9,796,511 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 41,400 |
|
|
| - |
|
|
| - |
|
|
| 41,400 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (233,734 | ) |
|
| - |
|
|
| (233,734 | ) |
Balances, July 2, 2023 |
|
| 6,246,118 |
|
| $ | 12,492 |
|
| $ | 11,486,535 |
|
| $ | (1,538,043 | ) |
| $ | (356,807 | ) |
| $ | 9,604,177 |
|
|
|
|
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Paid-in Capital |
|
| (Deficit) |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balances, December 29, 2019 |
|
| 8,095,004 |
|
| $ | 8,095 |
|
| $ | 497,671 |
|
| $ | (1,902,081 | ) |
| $ | (1,396,315 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (116,244 | ) |
|
| (116,244 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 29, 2020 |
|
| 8,095,004 |
|
| $ | 8,095 |
|
| $ | 497,671 |
|
| $ | (2,018,325 | ) |
| $ | (1,512,559 | ) |
|
|
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated |
|
| Treasury |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Deficit) |
|
| Stock |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balances, April 3, 2022 |
|
| 6,461,118 |
|
| $ | 12,922 |
|
| $ | 11,324,035 |
|
| $ | (557,588 | ) |
| $ | - |
|
| $ | 10,779,369 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 39,900 |
|
|
| - |
|
|
| - |
|
|
| 39,900 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (92,275 | ) |
|
| - |
|
|
| (92,275 | ) |
Balances, July 3, 2022 |
|
| 6,461,118 |
|
| $ | 12,922 |
|
| $ | 11,363,935 |
|
| $ | (649,863 | ) |
| $ | - |
|
| $ | 10,726,994 |
|
See Notes to Consolidated Condensed Consolidated Financial Statements (Unaudited)
Table of Contents |
BT BRANDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| 13 Weeks Ended |
|
| 13 Weeks Ended |
| ||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net Income (loss) |
| $ | (116,244 | ) |
| $ | (170,490 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities- |
|
|
|
|
|
|
|
|
Depreciation |
|
| 44,395 |
|
|
| 58,810 |
|
Amortization of franchise agreement |
|
| 425 |
|
|
| 425 |
|
Amortization of debt issuance cost |
|
| 1,295 |
|
|
| 1,277 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Receivables |
|
| 9,581 |
|
|
| 7,199 |
|
Inventory |
|
| 3,459 |
|
|
| 4,367 |
|
Prepaid expenses |
|
| 1,632 |
|
|
| 125 |
|
Accounts payable |
|
| 161,767 |
|
|
| 104,380 |
|
Unearned vendor rebate |
|
| (1,223 | ) |
|
| (815 | ) |
Accrued expenses |
|
| (23,649 | ) |
|
| (30,918 | ) |
Net cash provided by (used in) operating activities |
|
| 81,438 |
|
|
| (25,640 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Investment in notes receivable from related entity |
|
| (28,000 | ) |
|
| - |
|
Net cash used in investing activities |
|
| (28,000 | ) |
|
| - |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
| 50,000 |
|
|
| - |
|
Principal payments on long-term debt |
|
| (51,405 | ) |
|
| (63,293 | ) |
Net cash used in financing activities |
|
| (1,405 | ) |
|
| (63,293 | ) |
|
|
|
|
|
|
|
|
|
CHANGE IN CASH |
|
| 52,033 |
|
|
| (88,933 | ) |
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD |
|
| 258,101 |
|
|
| 663,511 |
|
|
|
|
|
|
|
| - |
|
CASH, END OF PERIOD |
| $ | 310,134 |
|
| $ | 574,578 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 35,172 |
|
| $ | 41,296 |
|
BT BRANDS, INC. AND SUBSIDIARIES | |||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
(Unaudited) | |||||||||||
| 26 Weeks ended, |
| |||||||||
|
| July 2, 2023 |
|
| July 3, 2022 |
| |||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| |||||
Net loss |
| $ | (375,520 | ) |
| $ | (49,625 | ) | |||
Adjustments to reconcile net loss to net cash |
|
|
|
|
|
|
|
| |||
provided (used) by operating activities- |
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
| 356,027 |
|
|
| 178,701 |
| |||
Amortization of debt issuance premium included in interest expense |
|
| 2,700 |
|
|
| 2,700 |
| |||
Deferred taxes |
|
| (82,000 | ) |
|
| (67,490 | ) | |||
Stock-based compensation |
|
| 77,300 |
|
|
| 73,400 |
| |||
Unrealized loss on marketable securities |
|
| 23,064 |
|
|
| 80,238 |
| |||
Investment gains |
|
| (29,178 | ) |
|
| - |
| |||
Loss on equity method investment |
|
| 145,050 |
|
|
| 14,172 |
| |||
Gain on sale of assets |
|
| (313,688 | ) |
|
| - |
| |||
Non-cash operating lease expense |
|
| 10,309 |
|
|
| - |
| |||
Property tax liability settlement |
|
| (181,339 | ) |
|
| - |
| |||
Changes in operating assets and liabilities, net of acquisitions - |
|
|
|
|
|
|
|
| |||
Receivables |
|
| 41,536 |
|
|
| 36,183 |
| |||
Inventory |
|
| (32,855 | ) |
|
| (33,833 | ) | |||
Prepaid expenses and other current assets |
|
| (20,743 | ) |
|
| (26,274 | ) | |||
Accounts payable |
|
| 166,879 |
|
|
| 206,284 |
| |||
Accrued expenses |
|
| 100,710 |
|
|
| 284,700 |
| |||
Income taxes payable |
|
| - |
|
|
| (201,088 | ) | |||
Net cash provided (used) by operating activities |
|
| (111,747 | ) |
|
| 498,068 |
| |||
|
|
|
|
|
|
|
|
| |||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
| |||
Acquisition of net assets of Keegan's Seafood Grille |
|
| - |
|
|
| (1,150,000 | ) | |||
Acquisition of net assets of Pie In The Sky Coffee and Bakery |
|
| - |
|
|
| (1,159,600 | )) | |||
Investment in Bagger Dave's Burger Tavern, Inc. |
|
| - |
|
|
| (1,260,000 | ) | |||
Proceeds from sale of assets |
|
| 496,000 |
|
|
| - |
| |||
Purchase of property and equipment |
|
| (265,747 | ) |
|
| (159,491 | ) | |||
Investment in related company |
|
| - |
|
|
| (229,000 | ) | |||
Purchase of marketable securities |
|
| (1,091,736 | ) |
|
| (607,988 | ) | |||
Proceeds from the sale of marketable securities |
|
| 5,858,348 |
|
|
| - |
| |||
Other assets |
|
| - |
|
|
| (12,500 | ) | |||
Net cash provided by (used) in investing activities |
|
| 4,996,865 |
|
|
| (4,578,579 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| |||
Repayment of broker margin loan |
|
| (791,370 | ) |
|
| - |
| |||
Principal payment on long-term debt |
|
| (289,222 | ) |
|
| (84,035 | ) | |||
Proceeds from exercise of common stock warrants |
|
| - |
|
|
| 74,866 |
| |||
Purchase of treasury shares |
|
| (250,225 | ) |
|
| - |
| |||
Net cash used in financing activities |
|
| (1,330,817 | ) |
|
| (9,169 | ) | |||
|
|
|
|
|
|
|
|
| |||
CHANGE IN CASH and CASH EQUIVALENTS |
|
| 3,554,301 |
|
|
| (4,089,680 | ) | |||
|
|
|
|
|
|
|
|
| |||
CASH and CASH EQUIVALVENTS, BEGINNING OF PERIOD |
|
| 2,150,578 |
|
|
| 12,385,632 |
| |||
|
|
|
|
|
|
| - |
| |||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 5,704,879 |
|
| $ | 8,295,952 |
| |||
|
|
|
|
|
|
|
|
| |||
SUPPLEMENTAL DISCLOSURES |
|
|
|
|
|
|
|
| |||
Cash paid for interest |
| $ | 47,209 |
|
| $ | 51,761 |
| |||
Cash paid for income taxes |
| $ | - |
|
| $ | 209,088 |
| |||
Purchase of property and equipment included in accounts payable |
| $ | 23,742 |
|
| $ | - |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
Table of Contents |
BT BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 –- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of BT Brands, Inc., and its subsidiaries.subsidiaries (the “Company,” “we,” “our,” “us,” or “BT Brands”) and have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated in consolidation. These interim condensed consolidated financial statementsconsolidation and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and on a basis consistent in all material respects with the accounting policies for the fiscal year ended December 29, 2019.ending January 1, 2023. In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
The accompanying Condensed Consolidated Balance Sheet, as of March 29, 2020July 2, 2023, does not include all of the disclosures required by GAAP. TheseAccordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of December 29, 2019January 1, 2023, and the related notes thereto included in the Company’s Form 10-K for the fiscal year ended December 29, 2019.January 1, 2023.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.estimates, and the differences could be material.
Reverse Merger TransactionThe Company
BT Brands, Inc. (the “Company”) was incorporated as Hartmax of NY Inc. on January 19, 2016 with the objective of acquiring an operating entity.2016. Effective on July 30, 2018, the Company acquired 100% of the ownership BTND, LLC. in exchange for common stock
We operate restaurants in the Company through a Share Exchange Agreement (“Share Exchange”) with BTND, LLC (“BTND”), and its Members. Following the Share Exchange, BTND became a wholly owned subsidiaryeastern two-thirds of the Company for reporting purposes under GAAP.United States. As of July 2, 2023, including our 41.2% owned Bagger Dave’s business, we operated eighteen restaurants comprising the following:
Business
· | Eight Burger Time fast-food restaurants and one Dairy Queen franchise located in the North Central region of the United States, collectively (“BTND”); | |
· | Bagger Dave’s Burger Tavern, Inc, a 41.2% owned affiliate, operates six Bagger Dave’s restaurants in Michigan, Ohio, and Indiana (“Bagger Dave’s”); | |
· | Keegan’s Seafood Grille in Indian Rocks Beach, Florida (“Keegan’s”); | |
· | Pie In The Sky Coffee and Bakery in Woods Hole, Massachusetts (“PIE”). | |
· | Village Bier Garten is a German-themed restaurant, bar, and entertainment venue in Cocoa, Florida (“VBG”). |
The Company currently operates company-owned fast-food restaurants called Burger Time. The Company also operates one unit in Minnesota as a franchisee of International Dairy Queen. The Company operates three Burger Time locations in Minnesota, four in North Dakota, and two in South Dakota. The Company closed a store in Richmond, Indiana during the year, which is listed for sale, resulting in a total of ten operating restaurants at March 29, 2020. The Company owns a restaurant property in St. Louis, Missouri currently held for sale.
The Company’sOur Dairy Queen store is operated pursuant to the terms ofunder a franchise agreement with International Dairy Queen. The Company is required toWe pay regular royalty and advertising payments to the franchisor and to remain in compliance with the terms ofas required by the franchise agreement.
9 |
Table of Contents |
Fiscal Year Period
The Company’sOur fiscal year is a 52/53-week year, ending on the Sunday, closest to December 31. Most years consist of four 13-week accounting periods comprising the 52-week year. All references to years in this report refer to the 13-week periods in the respective fiscal year periods. Fiscal 2020The fiscal year 2023 is a 53-week year52 weeks ending January 3, 2021.
December 31, 2023.
Cash and Cash Equivalents
For purposes of reporting cash and cash flows, cash and cash equivalents includes money market funds and is net of outstanding checks and includes amounts on deposit at banks a money market mutual fund holding, and deposits in transit.transit and excludes transfers out in transit and includes brokerage account money market funds which are not insured deposits.
ReceivablesFair Value of Financial Instruments
The Company’s accounting for fair value measurements of assets and liabilities, including available-for-sale securities, is that they are recognized or disclosed at fair value in the statements on a recurring or nonrecurring basis, adhere to the Financial Accounting Standards Board (FASB) fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value.
The hierarchy prioritizes unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
· | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. | |
· | Level 2 inputs are inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the entire term of the asset or liability. | |
· | Level 3 Inputs are unobservable inputs for the asset or liability. |
The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to fair value measurement in its entirety.
The carrying values of cash, receivables, accounts payable and other financial working capital items approximate fair value due to the short maturity nature of these instruments.
On July 2, 2023, the cost of marketable securities includes a bond fund at a cost of $416,570 and common stocks at a cost of $978,040 for a total cost of $1,394,610 prior to a mark-to-market reduction of $160,814. At January 1, 2023, the fair value of Level 1 investments included common stocks of $713,900 and a corporate bond exchange-traded fund (ETF) of $316,000, a total carrying value of $1,029,900, net of an unrealized mark-to-market loss of $86,422. These investments are reflected in the accompanying financial statements at July 2, 2023, at the level-one quoted market price in an active market of $1,233,796.
Investments
Noncurrent investments at July 2, 2023, include our net equity method investment of $920,837 in Bagger Dave’s and our $304,000 total investment in NGI Corporation. (NGI). In 2020, the Company received equity ownership in NGI as consideration for a loan to NGI. Upon repayment of the loan to NGI, $75,000 was attributed by us to the value of the equity received, which was reflected as additional interest income in 2020. The fair value determined in 2020 continues to be reflected as the value of the investment. On February 12, 2022, we invested $229,000 in Series A1 8% Cumulative Convertible Preferred Stock of NGI, including a five-year warrant to purchase 34,697 common shares of NGI at $1.65 per share. See also Note 8.
Bagger Dave’s common stock is traded on the OTC Pink Sheets market and files quarterly and annual financial reports with OTCMarkets, Inc. under the Alternative Reporting Standard. The listing with OTC Markets does not require the information to be audited. For the thirteen weeks ended June 25, 2023, Bagger Dave’s had sales of $1,966,644 and a net loss of $230,844 and for the 26 weeks in 2023 Bagger Dave's sales were approximately $3,981,000 and the year to date loss was $352,000. For the 26-week period, our 41.2% equity share in the loss was approximately $145,050 and is included in the accompanying statement of operations.
Investments also includes 1,421,647 shares of Noble Roman's, Inc. with a cost and market value of approximately $300,000 representing approximately 6.4% ownership of Noble Roman's. During the third quarter the company was unsuccessful in its effect to have its CEO, Gary Copperud elected to the Noble Roman's board of directors.
10 |
Table of Contents |
Receivables
Receivables consistsconsist mainly of estimated rebates due from a primary vendor.
Inventory
Inventory consists of food, beverages and supplies and is stated at a lower of cost (first-in, first-out method) or net realizable value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives, which rangeranging from three to thirty years.
The Company reviews long-lived assets to determine if the carrying value of these assets may not beis recoverable based on estimated cash flows. Assets are reviewedevaluated at the lowest level, for which cash flows can be identified which is at the restaurant level. In determining future cash flows, significant estimates are made by the Company with respect tofor future operating results of each restaurant over its remaining life.restaurant. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets.
Land, building and equipment, operating right of use assets and certain other assets, including definite-lived intangible assets, are reviewed regularly for impairment and whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount of the assets to the future undiscounted net cash flow expected to be generated and is determined at the restaurant level. If an asset is determined to be impaired, the recognized impairment is measured by the amount by which the carrying amount of the asset exceeds the fair value.
Impairment and Disposal of Long-Lived Assets
Assets Held for Sale
From time-to-timeWe closed the Company may sell an existing operating unit or may close an operating unit and list the property for sale. A property in the St. Louis area is currently listed for sale. Also, in September of 2018 the Company closed an operating Burger Time unitstore in Richmond, IndianaWest St. Paul in 2022 and the Richmond, propertyIndiana, store in 2018. The West St. Paul location sale was completed in February of 2023 for a gain of $313,688. The Richmond location is listedcurrently offered for sale. We believe the Richmond property will be sold at or above its current carrying value. In the second quarter of fiscal 2019 it was concluded to record a charge of $93,488 for impairment2023, we completed the disposition of the valueSt. Louis property in lieu of the Richmond location.unpaid property taxes resulting in an elimination of approximately $180,000 of previously accrued property taxes which is reflected as a reduction of occupancy costs.
Income Taxes
We accountprovide for income taxes using theunder (Accounting Standards Codification (ASC), 740), Accounting for Income Taxes. ASC 740 uses an asset and liability method, whereby deferredapproach in accounting for income taxes. Deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities andliabilities. They 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. As of July 2, 2023, the Company estimates a current tax provision at the statutory rate of approximately 27.5%
The Company has a net operating loss carry-forward from the prior year and incurred additional net operating losses during the periods ended March 29, 2020 and March 31, 2019. These losses resulted in an increase in the related deferred tax assets; however, full valuation allowances were made which reduced these deferred tax assetsno accrued interest or penalties relating to zero; therefore, no income tax provisionobligations. The Company has no federal or benefit was recognizedstate examinations in progress, nor has it had any federal or state tax examinations since its inception. All periods since inception remain open for the periods ending March 29, 2020 and March 31, 2019 resulting in an effective income tax rate of 0% for both periods.
inspection.
Per Common Share Amounts
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income or (loss) per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computedcalculated by dividing net income by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted net loss per share becauseper-share amounts if their effect would beis anti-dilutive. There were no potentially dilutive shares outstanding as offor the periods ending in 20202023 and 2019, as the strike price for warrants outstanding was above the fair market price of the underlying stock in both periods.2022.
11 |
Table of Contents |
Goodwill, Other Intangible Assets and Other Assets
Goodwill is not amortized. Goodwill is tested for impairment at least annually. The cost of other intangible assets is amortized over the expected useful life. Other assets principally isinclude the allocated fair value of the acquired Dairy Queen franchise agreement related to the Company’sour location in Ham Lake, Minnesota, andwhich is being amortized over an estimated useful life of 14 years.
Liquidity and Capital Resources
The consolidated financial statements have been prepared on a going concern basis. For the 13 weeks ended March 29, 2020, the Company incurred a net loss of $116,244. On March 29, 2020, the Company had $310,134 in cash and a working capital deficit of $535,201 an increase of $66,875 from the year-end deficit of $468,326. On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (‘Covid-19”) a global pandemic. Covid-19 is having a significant adverse impact on the United States economy. At this time, it is impossible to predict either the near-term effects or the ultimate impact of the Covid-19 pandemic on the Company’s operating results and financial condition as the situation is rapidly evolving.
A cash flow forecast for the next 12 months prepared by management has been adjusted to reflect recent offers by banks, in the wake of the COVID-19 Pandemic, including the Company’s principal lenders, Northview Bank and Bremer Bank, to abate all loan payments for the period from March through May of 2020. In May, 2020 the Company received loans of $487,900 of that amount, $460,400 was borrowed under the Small Business Administration Payroll Protection Program and assuming certain conditions are met, these loans may be forgiven. In May, 2020, the Company also borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program. The Company expects to have sufficient cash assets to meet its obligations for a year from the issuance of these consolidated financial statements. No adjustments have been made relating to recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.
NOTE 2 – INTANGIBLE ASSETS
At July 2, 2023, the value of Intangible Assets are as follows:
|
| Estimated Useful Life (Years) |
|
| Original Cost |
|
| Accumulated Amortization |
|
| Net Carrying Value |
| ||||
Covenants not to Compete |
|
| 3 |
|
| $ | 98,000 |
|
| $ | (41,110 | ) |
| $ | 56,890 |
|
Trademarks |
|
| 15 |
|
|
| 393,000 |
|
|
| (38,177 | ) |
|
| 354,823 |
|
|
|
|
|
|
| $ | 491,000 |
|
| $ | (79,287 | ) |
| $ | 411,713 |
|
Tradename assets are being amortized over 15 years at $26,000 in amortization expense per year. The total amortization of intangible assets, including the covenants not to compete, will approximate $58,900 in 2023 and 2024, $40,500 in 2025, $26,200 per year thereafter for the following six years and approximately $7,500 in 2037.
Total amortization expense for the 2023 13-week period was $14,718, and for the 26-week period ended July 2, 2023 was $42,265
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at end of the respective fiscal years:following:
|
| 03/29/2020 |
|
| 12/29/2019 |
| ||
Land |
| $ | 555,885 |
|
| $ | 555,885 |
|
Equipment |
|
| 2,390,545 |
|
|
| 2,390,545 |
|
Buildings |
|
| 1,363,642 |
|
|
| 1,363,642 |
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
| 4,310,072 |
|
|
| 4,310,072 |
|
Accumulated depreciation |
|
| (2,255,211 | ) |
|
| (2,210,816 | ) |
Less - Property held for sale |
|
| (449,244 | ) |
|
| (449,244 | ) |
Net property and equipment |
| $ | 1,605,617 |
|
| $ | 1,650,012 |
|
|
| July 2, 2023 |
|
| January 1, 2023 |
| ||
Land |
| $ | 435,239 |
|
| $ | 485,239 |
|
Equipment |
|
| 3,842,834 |
|
|
| 3,893,274 |
|
Buildings and leasehold improvements |
|
| 2,421,521 |
|
|
| 2,402,157 |
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
| 6,699,594 |
|
|
| 6,780,670 |
|
Accumulated depreciation |
|
| (3,164,160 | ) |
|
| (3,039,500 | ) |
Less - property held for sale |
|
| (258,751 | ) |
|
| (446,526 | ) |
Net property and equipment |
| $ | 3,276,683 |
|
| $ | 3,294,644 |
|
Depreciation expense for the 13-week periods in 20202023 and 20192022 was $44,395$192,520 and $58,810,$109,286, respectively; for the 26-week periods in 2023 and 2022 was $312,911 and $177,676, respectively.
Table of Contents |
NOTE 3 –4 - ACCRUED EXPENSES
Accrued expenses consisted of the following at the dates:at:
|
| 3/29/2020 |
|
| 12/29/2019 |
| ||
Accrued real estate taxes |
| $ | 24,888 |
|
| $ | 66,959 |
|
Accrued payroll |
|
| 38,529 |
|
|
| 69,572 |
|
Accrued payroll taxes |
|
| 7,522 |
|
|
| 7,058 |
|
Accrued sales taxes payable |
|
| 82,763 |
|
|
| 35,380 |
|
Accrued vacation pay |
|
| 24,791 |
|
|
| 23,204 |
|
Other accrued expenses |
|
| 590 |
|
|
| 559 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 179,083 |
|
| $ | 202,732 |
|
|
| July 2, 2023 |
|
| January 1, 2023 |
| ||
Accrued real estate taxes |
| $ | 29,747 |
|
| $ | 202,436 |
|
Accrued bonus compensation |
|
| 67,472 |
|
|
| 59,139 |
|
Accrued payroll and payroll taxes |
|
| 199,674 |
|
|
| 156,245 |
|
Accrued sales taxes payable |
|
| 125,921 |
|
|
| 70,270 |
|
Accrued vacation pay |
|
| 17,663 |
|
|
| 17,663 |
|
Accrued gift card liability |
|
| 11,414 |
|
|
| 25,965 |
|
Other accrued expenses |
|
| - |
|
|
| 802 |
|
|
| $ | 451,891 |
|
| $ | 532,520 |
|
NOTE 4 –5 - LONG TERM DEBT
The Company had the following long termOur long-term debt obligationsis as of:follows:
|
| 3/29/2020 |
|
| 12/29/2019 |
| ||
|
|
|
|
|
|
| ||
Note payable to bank dated October 30, 2015 due in monthly installments |
|
|
|
|
|
| ||
of $6,916 through October 30, 2030, which includes principal and interest at a |
|
|
|
|
|
| ||
fixed rate of 4.75%. This note is secured by two of the Company's Minnesota |
|
|
|
|
|
| ||
locations and the personal guaranty of a shareholder of the Company. |
| $ | 691,092 |
|
| $ | 699,311 |
|
|
|
|
|
|
|
|
|
|
Note payable to bank dated November 16, 2015 due in monthly installments |
|
|
|
|
|
|
|
|
of $14,846, which includes principal and interest at fixed rate of 4.75% through |
|
|
|
|
|
|
|
|
November 16, 2030. This note is secured by four of the Company's North Dakota |
|
|
|
|
|
|
|
|
locations and the personal guaranty of a shareholder of the Company. |
|
| 1,482,482 |
|
|
| 1,509,435 |
|
|
|
|
|
|
|
|
|
|
Note payable to bank dated October 10, 2015 due in monthly |
|
|
|
|
|
|
|
|
installments of $4,153 through March 11, 2030, which includes principal |
|
|
|
|
|
|
|
|
and interest at fixed rate of 4.75%. This note is secured by the Company's |
|
|
|
|
|
|
|
|
Dairy Queen location and the personal guaranty of a shareholder of the Company. |
|
| 409,686 |
|
|
| 414,562 |
|
|
|
|
|
|
|
|
|
|
Note payable to bank dated March 11, 2016 due in monthly installments |
|
|
|
|
|
|
|
|
of $3,692 through March 11, 2031 which includes principal and interest at |
|
|
|
|
|
|
|
|
a fixed rate of 4.75%. This note is secured by one of the Company's South Dakota |
|
|
|
|
|
|
|
|
locations and the personal guaranty of a shareholder of the Company. |
|
| 377,618 |
|
|
| 384,208 |
|
|
|
|
|
|
|
|
|
|
Notes payable to bank dated November 10, 2016 payable in monthly installments |
|
|
|
|
|
|
|
|
of $1,331 which includes principal and interest at 4%, the interest rate is subject |
|
|
|
|
|
|
|
|
to adjustment based on 5-year Treasury Note rate 2021 and cannot be |
|
|
|
|
|
|
|
|
be less than 4%. This note is secured by property held for sale in Richmond |
|
|
|
|
|
|
|
|
Indiana and the personal guaranty of a shareholder of the Company. |
|
| 148,737 |
|
|
| 151,234 |
|
|
|
|
|
|
|
|
|
|
Unsecured 8% notes payable to an entity controlled by shareholders of the |
|
|
|
|
|
|
|
|
Company dated December 26, 2017 originally due on demand after June 1, 2020. |
|
|
|
|
|
|
|
|
Effectice July 1, 2019 a revised note was entered into due June 1, 2021 |
|
|
|
|
|
|
|
|
with monthly payments of $5,000 due beginning August 1, 2019. An additional |
|
|
|
|
|
|
|
|
$50,000 was advanced to the Company in January 2020 and this advance |
|
|
|
|
|
|
|
|
is included in current maturities. |
|
| 257,264 |
|
|
| 207,264 |
|
|
|
|
|
|
|
|
|
|
Note payable to bank dated December 28, 2018 due in monthly |
|
|
|
|
|
|
|
|
installments of $1,644 through December 31, 2023 which includes principal |
|
|
|
|
|
|
|
|
and interest at a fixed rate of 5.50%. This note is secured by the West St. Paul |
|
|
|
|
|
|
|
|
location and the personal guaranty of a shareholder of the Company. |
|
| 189,800 |
|
|
| 192,068 |
|
|
|
|
|
|
|
|
|
|
|
|
| 3,556,679 |
|
|
| 3,558,082 |
|
Less - unamortized debt issuance costs |
|
| (58,087 | ) |
|
| (59,381 | ) |
Current maturities |
|
| (243,784 | ) |
|
| (277,666 | ) |
|
|
|
|
|
|
|
|
|
Total |
| $ | 3,254,808 |
|
| $ | 3,221,035 |
|
In the first quarter of fiscal 2020, as a result of the many uncertainties surrounding the economy during the COVID-19 response, two of the Company’s mortgage lenders agreed to suspend current payments for a period of three months. The loans will continue to accrue interest at the stated rate, which included in the principal outstanding, and the suspended payments will be treated as balloon-payments due at the end of the mortgage term.
|
| July 2, 2023 |
|
| January 1, 2023 |
| ||
|
|
|
|
|
|
| ||
Three notes payable to a bank dated June 28, 2021, due in monthly installments totaling $22,213, including principal and interest at a fixed rate of 3.45% through June 28, 2031. Beginning in July 2031, the interest rate will be equal to the greater of the “prime rate” plus .75%, or 3.45%. These notes mature on June 28, 2036. The notes are secured by mortgages covering ten BTND operating locations. BT Brands, Inc. and a shareholder of the Company guarantee the notes. |
| $ | 2,578,011 |
|
| $ | 2,864,484 |
|
|
|
|
|
|
|
|
|
|
Minnesota Small Business Emergency Loan dated April 29, 2020, payable in monthly installments of $458.33 beginning December 15, 2020, including principal and interest at 0%. This note is secured by the personal guarantee of a shareholder of the Company. Pursuant to the terms of the loan, $13,750 of the loan was forgiven on June 22, 2022 |
|
| 458 |
|
|
| 3,208 |
|
Total |
|
| 2,578,469 |
|
|
| 2,867,692 |
|
Less - unamortized debt issuance costs |
|
| (38,899 | ) |
|
| (41,599 | ) |
Current maturities |
|
| (164,866 | ) |
|
| (167,616 | ) |
|
| $ | 2,374,705 |
|
| $ | 2,658,477 |
|
NOTE 5 – RELATED PARTY TRANSACTIONS
BTND Trading
BTND Trading is an entity separate from the Company owned by certain significant shareholders of the Company, from time-to-time BTND Trading has advanced funds to the Company. In 2020 no payments have been made on this note and during the first quarter BTND Trading advanced an additional $50,000 to the Company which amount has been added to the current portion long-term debt as it is anticipated this advance will be repaid before the end of the year.
Next Gen Ice6 - STOCK-BASED COMPENSATION
In 2019, we adopted the BT Brands, Inc 2019 Incentive Plan (the “Plan”), under which the Company mademay grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units, and other stock and cash awards to eligible participants. As of July 2, 2023, there were 529,750 shares available for grant under the Plan.
Compensation expense equal to the fair value of the options at the grant date is recognized in general and administrative expense over the applicable service period. Total equity-based compensation expense through the second quarter of 2023 was $77,300 and $73,400 through the second quarter of 2022, and $41,300 and $9,500, respectively, related to the Contingent Share Award described below. Based on current estimates, we project that approximately $180,000 in stock-based compensation expense for current grants will be recognized over the next three years at approximately $60,000 per year.
As outlined in each agreement, stock options granted to employees and directors vest over four years in annual installments. Options expire ten years from the date of the grant. Compensation expense equal to the fair value of the options at the grant date is recognized in general and administrative expense over the applicable service period.
13 |
Table of Contents |
We utilize the Black-Scholes option pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:
· | Stock price – Published trading market values of the Company’s common stock as of the grant date. | |
· | Exercise price – The stated exercise price of the stock option. | |
· | Expected life – The simplified method | |
· | Expected dividend – The rate of dividends expected to be paid over the term of the stock option. | |
· · | Volatility – Estimated volatility. Risk-free interest rate – The daily United States Treasury yield curve rate corresponding to the expected life of the award |
Information regarding our stock options is summarized below:
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Term (In Years) |
|
| Aggregate Intrinsic Value |
| ||||
Options outstanding at January 1, 2023 |
|
| 220,250 |
|
| $ | 2.74 |
|
|
| 9.0 |
|
| $ | 0 |
|
Granted |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
Canceled, forfeited, or expired |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
Options outstanding at July 2, 2023 |
|
| 220,250 |
|
| $ | 2.74 |
|
|
| 8.5 |
|
| $ | 0 |
|
Options exercisable at July 2, 2023 |
|
| 94,950 |
|
| $ | 3.18 |
|
|
| 8.5 |
|
| $ | 0 |
|
On February 27, 2023, the Company finalized a seriesContingent Incentive Share Award with senior executives. The Contingent Share Awards provides that so long as the Company’s publicly traded warrants are outstanding, senior management of advancesthe Company will be deemed to earn an aggregate award of 250,000 shares of common stock as an award upon the Company’s share price reaching $8.50 per share for 20 consecutive trading days, provided, however, participants must be employed by the Company at the time the Incentive Shares are earned. The estimated fair value of the plan is $1.00 per share, and $250,000 of compensation expense will be recognized over the remaining 2.1 years available under the Plan and $41,300 of stock-based compensation was recognized for this Agreement for the 26-week period of 2023. We utilized a lattice model when determining the fair value of the Contingent Incentive Share Awards. Assumptions utilized in the formmodel include a risk-free rate of investments in Next Gen Ice, Inc. (NGI) Series C Notes totaling $179,000. In4.4% and volatility of 63%.
NOTE 7 – LEASES
With the first quarteracquisition of 2020 the Company advanced an additional $28,000 to NGI and the $28,000 advance was repaid following the end of the quarter, in April 2020. The Company’s CEO, Gary Copperud, is Chairman of NGI and the Company’s Chief Operating Officer, Kenneth Brimmer, is a member of the Board of Directors of NGI and is currently serving as Chief Financial Officer of NGI on a part-time contract basis. Mr. Copperud and limited liability companies controlled by him together own approximately 55% of the outstanding equity of NGI. The Series C Notes were originally due on March 3, 2020. On March 3, 2020, the Company and NGIKeegan’s net assets, we entered into a Loan Modification and Extension Agreement pursuantlease for approximately 2,800 square feet of restaurant space. The 131-month Keegan’s lease provides for an initial rent of $5,000 per month with an annual escalation equal to which the Company agreed to extendgreater of 3% or the maturity dateConsumer Price Index. The lease is being accounted for as an operating lease. At the inception of the NGI Notes to August 31, 2020. In considerationlease, we recorded an operating lease obligation and a right-of-use asset of $624,000. The present value discounted at 4% of the extensionremaining lease obligation of $539,919 is reflected as a liability in the accompanying financial statements.
Keegan’s lease does not provide an implicit interest rate; we used our incremental borrowing rate of 4% to determine the present value. The incremental borrowing rate represents an estimate of the terminterest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.
Upon acquiring PIE assets, we leased approximately 3,500 square feet of restaurant and bakery production space. The terms of the NGI Notes: (i) NGI granted60-month lease provide for an initial rent of $10,000 per month with an annual escalation of after 24 months of 5%. The PIE lease includes three five-year renewal option periods. The PIE lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $1,055,000. The present value discounted at 5% of the remaining lease obligation of $951,227 is reflected as a liability in the accompanying financial statements.
The PIE lease did not provide an implicit interest rate; we used our estimated incremental borrowing rate of 5% to determine the present value of future lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the Companylease payments on a securitycollateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.
14 |
Table of Contents |
With the acquisition of assets of Village Bier Garten, we entered into a five-year lease with the seller for approximately 3,000 square feet of restaurant space and access to an additional 3,000 square feet of shared entertainment and seating area. The terms of the triple-net 60-month provide for an initial rent of $8,200 per month with an annual escalation of 3%. The VBG lease includes three five-year renewal option periods. The VBG lease does not provide an implicit interest in allrate; we used our estimated incremental borrowing rate of NGI’s assets, (ii) issued4.5% to determine the present value of future lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.
The VBG lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $469,949. The present value, discounted at 4.5% of the remaining lease obligation of $423,722, is reflected as a liability in the accompanying financial statements.
Following is a schedule of the approximate minimum future lease payments on the operating leases as of July 2, 2023:
|
| Total |
| |
Remainder 2023 |
| $ | 141,576 |
|
2024 |
|
| 289,076 |
|
2025 |
|
| 297,745 |
|
2026 |
|
| 306,674 |
|
2027 |
|
| 268,437 |
|
2028 and thereafter |
|
| 1,039,438 |
|
Total future minimum lease payments |
|
| 2,342,966 |
|
Less - interest |
|
| (428,098 | ) |
|
| $ | 1,914,868 |
|
The Company is a warrant entitling itparty to a month-to-month land lease agreement for one of its Burger Time locations. The net book value of the building on this land is approximately $18,500. The monthly lease payment is $1,800 plus the cost of property taxes.
The weighted average remaining lease term is approximately 5.6 years.
The Company also pays monthly rent, under month-to-month arrangements, for corporate and administrative office spaces in West Fargo, North Dakota, and Minnetonka, Minnesota, for a combined monthly rent of approximately $2,200.
The total operating lease expense for the 26-week and 13-week period in 2023 was $223,589 and $97,887 respectively Cash paid for leases during the 26-week period in 2023 totaled $141,426, and variable expenses for leased properties were approximately $28,500.
NOTE 8 - RELATED PARTY TRANSACTION
NGI Corporation
Our CEO and CFO also serve as Chairman and CFO, respectively, of NGI Corporation (NGI). BT Brands owns 330,418 common shares and holds warrants to purchase 358,000 common shares at $1.00, expiring March 31, 2028, and 34,697 warrants to purchase additional shares at $1.65 of NGI. We received 179,000 shares of common stock ofin NGI as consideration for modifying a note that was subsequently paid. The common stock and warrants received in the note modification transaction were recorded at a pricevalue determined by BT Brands of $1.00 per share$75,000. The investment in NGI does not have a readily determinable market value. Therefore, it is carried at any time through March 31, 2023, and (iii) the founders of NGI including Mr. Copperud agreed to transfer to the Company 179,000 common shares of NGI.a cost determined by BT Brands.
NOTE 69 – CONTINGENCIES
In the course of its business, the Company may be a party to claims and legal or regulatory actions arising from the conduct of its business. The Company is not awareHowever, we are unaware of any significant asserted or potential claims whichthat could impact itsour financial position
NOTE 7 – Covid-19 AND EMERGENCY LOAN RELIEF
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (‘Covid-19”) a global pandemic. Covid-19 has had a significant adverse impact on the United States economy. While we have experienced some product shortages and some labor shortages, we have continued to operate all of our locations on a drive-through basis only with some limited hours and closing access to both the walk-up window and any indoor seating. Indoor seating is only available in our Dairy Queen and one other location. At this time, it is impossible to predict the ultimate impact of the Covid-19 pandemic on the Company’s operating results and financial condition as the situation and regulations surrounding government response to the pandemic are constantly changing.
On May 1, 2020, the Company received funding in connection with “Small Business Loans” under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief and Economic Security Act, as amended from time to time (the “PPP”). Pursuant to the terms of the Promissory Notes dated May 1, 2020, by BTND and BTNDDQ, L.L.C. in favor of Northview Bank. BTND borrowed $418,900 original principal amount, and BTNDDQ, L.L.C. borrowed $41,500 original principal amount. Both PPP loans were funded on May 1, 2020. The PPP Loans bear interest at 1% per annum and mature in two years from the date of disbursement of funds. Interest and principal payments under the PPP Loans will be deferred for a period of six months. Under certain circumstances, all or a portion of the PPP Loans may be forgiven, however, there can be no assurance that any portion of the PPP Loans will be forgiven and that BTND and BTNDDQ, L.L.C. would not be required to repay the PPP Loans in full. The PPP Loan contains certain covenants which, among other things, restrict the borrower’s use of the proceeds of the PPP Loan to the payment of payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other agreements with any creditor of the borrower, to the extent that a default under any loan or other agreement would materially affect the borrower’s ability to repay the PPP Loan and limit the ability of the borrower to make certain changes to its ownership structure.
On April 29, 2020, BTNDDQ, L.L.C. also borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program from Central Minnesota Development Corporation. This loan is interest free and under certain conditions up to 50% of the loan may be forgiven, BTNDDQ, L.L.C., initially, is required to make 18 monthly payments of $458.33 beginning December 15, 2020, following the initial 18 months, in the event the note does not qualify for loan forgiveness, it will be repaid in equal installments over an additional 36 months.position.
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of the financial condition, results of operations, liquidity and capital resources of BT Brands, Inc. and its wholly-owned subsidiaries (together, the “Company”) should be read in conjunction with the Company’s condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K for the year ended December 29, 2019.January 1, 2023.
OverviewIntroduction
We ownAs of July 2, 2023, including our partially owned Bagger Dave’s business, we owned and operate ten fast foodoperated eighteen restaurants including ninecomprising the following:
· | Eight Burger Time fast-food restaurants and one Dairy Queen franchise (“BTND”); | |
· | Village Bier Garten is a German-themed restaurant, bar, and entertainment venue in Cocoa, Florida (“VBG”): | |
· | Keegan’s Seafood Grille in Indian Rocks Beach, Florida (“Keegan’s”); | |
· | Pie In The Sky Coffee and Bakery in Woods Hole, Massachusetts (“PIE”). | |
· | Unconsolidated affiliate Bagger Dave’s Burger Tavern, Inc, 41.2% owned, operates six Bagger Dave’s restaurants in Michigan, Ohio, and Indiana (“BD”). |
Burger Time restaurants and one Dairy Queenopened its first restaurant all of which are in theFargo, North Central region of the United States. OurDakota, in 1987. Burger Time restaurants feature a wide variety of burgersgrilled hamburgers and other affordably pricedaffordable foods such as chicken sandwiches, pulled pork sandwiches, sides, and soft drinks. Our Dairy Queen restaurant offers the established Dairy Queen menu consisting of burgers, chicken, sides, ice cream and other desserts, and a wide array of beverages. Our revenues are derived from the sale of food and beverages at our restaurants.
Our Burger TimeTime’s operating principles include:include (i) offering bigger burgers and more value for the money; (ii) offering a limited menu to permit attention to quality and speed of preparation; (iii) providing fast service by way of single and double drive-thru designs and a point-of-sale system that expedites the ordering and preparation process;process, and (iv) great tasting and quality food made fresh to order at a fair price. Our primary strategy is to serve the drive-thru and take-out segment of the quick-service restaurant industry.
Business Trends - EffectsThe average customer transaction price at our Burger Time restaurants increased by approximately 20% in fiscal 2023 compared to 2022 and currently is about $15.60. This recent increase is principally the result of COVID-19menu price increases implemented in 2022. Many factors influence our sales trends. Our business environment is challenging as competition is intense.
We operate through a central management organization that provides continuity across our restaurant base by utilizing the efficiencies of a central management team.
Notable Recent Events
In March 2020,Our recent acquisitions have allowed us to diversify our operations into new restaurant segments and new geographic regions, reducing our dependency on the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally. It has also disrupted the normal operations of many businesses, including ours. In response to this outbreak, many state and local authorities have mandated the temporary closure of non-essential businesses and dine-in restaurant activity. While we have experienced some product shortages, for now, we have continued to operate allperformance of our locationsBurger Time restaurants. During the 2022 fiscal year, we acquired three operating restaurants and a 41.2% ownership interest in BD, an operator of six casual restaurants. We expect to consider new acquisition opportunities in the future.
Material Trends and Uncertainties
Industry trends have a direct impact on our business. Current trends include difficulties attracting food service workers and rapid inflation in the cost of input items. Recent trends also include the rapidly changing area of technology and food delivery. The major companies in the restaurant industry have rapidly adopted and developed smartphone and mobile delivery applications, aggressively expanded drive-through operations, and developed loyalty programs and database marketing supported by a drive-through basis only eliminating accessrobust technology platform. We expect these trends to continue as restaurants aggressively compete for customers. Competitors will continue to discount prices through aggressive promotions.
Food costs have increased over the walk-up service windowlast two years, and any indoor seating which is only available at our Dairy Queen locationwe expect to see some moderating inflationary pressure during the remainder of 2023. Beef and one other location. Also, most of our locationsegg costs have outdoor picnic table seating for usetrended down slightly in nicer summer weather, and in, most cases, these dining areas have been closed. At this time, it is impossible to predict2023. Given the near-term effects or the ultimate impactcompetitive nature of the Covid-19 pandemic on the Company’s operating results and financial condition as the situation and regulations surrounding government responserestaurant industry, it may be challenging to the pandemic are constantly changing.raise menu prices to cover cost increases fully. As a result, of the many uncertainties potentially threatening our ability to continue as a going concern.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, providing provisions aid small businesses through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. We are currently evaluating the impact of the provisions of the CARES Act. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The loanfuture margin improvements may be forgiven if the funds are used for payrolldifficult to achieve. Margin improvement will be achieved through operational enhancements, equipment advances, and other qualified expenses. Given the absence of any funding alternatives, the Company applied for and was granted loans totaling $460,400 under the United States Small Business Administration’s Payroll Protection Program. The Company expects to use these funds to meet payroll expenses. The Company’s BTNDDQ, L.L.C. subsidiary also received a $27,500 loan from a State of Minnesota Small Business Emergency Loan Program.increased volumes offsetting food cost increases.
Table of Contents |
Growth Strategy and Outlook
We are seekingLabor is a critical factor in operating our stores. Securing staff to increase valuerun our locations at full capacity has become more challenging in most areas where we operate our restaurants. The current labor market has resulted in higher wages as the competition for our shareholdersemployees intensifies, not only in the foodservice industry. We expect to pursue the acquisition of multi-unit restaurant conceptsindustry but in practically all retail and individual restaurant properties at attractive multiples of earnings. Once acquired,service industries. To succeed, we will operate the business or businesses with a shared central management organization. Assuming we are successful in acquiring an operating business, following the acquisition, we expect to pursue growth strategies to both expand the number of locationsmust identify, develop and to increase comparable store sales and profits.
Our business plan is to grow through acquisitions in the foodservice industry. In addition, we may develop additional Burger Time locations through the acquisition and conversion of existing properties. We also expect to identify and complete acquisitions of existing restaurant units and multi-unit chains which could be operated and expanded through the addition of new locations. Our growth strategy is predicated upon (i) building or acquiring new restaurants, (ii) growing comparable restaurant sales and profits, and (iii) quickly and cost-effectively scaling our growth while leveraging our corporate services.
We believe that we will have opportunities to acquire new restaurant businesses. We intend to follow a disciplined strategy of evaluating acquisition opportunities to determine the operations are in markets meeting our demographic, real estate and investment criteria. Our ability to successfully evaluate an acquisition opportunity and to understand the competitive landscape of a new market will be critical in making a successful acquisition. Additionally, our ability to identify, recruit and hire both salaried and hourly staff will impact our ability to expand as will changes in the legal environment, including increases to the minimum wage, which could impact our ability to expand into certain areas. Further, we believe that there has been an oversaturation of restaurants in certain areas which could decrease the number of markets that we believe will be attractive to expand into. Even if we can acquire restaurants, the new restaurants, and our Company, will be subject to various risks, some of which, including factors impacting our customers, such as declining economic conditions, are entirely out of our control. We will seek to quickly and cost-effectively scale our growth by leveraging our general and administrative costs.retain quality employees.
ResultsResult of Operationsoperations for the 13 weeks ending July 2, 2023, compared to the 13 weeks ending July 3, 2022.
The following table sets forth, for the fiscal periods indicated, our CondensedConsolidated Statements of Operations expressed as a percentage of total revenues. Percentages belowThe percentages may not reconcile because of rounding.
|
| 13 Weeks Ended, |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
|
|
|
|
|
|
| ||
SALES |
|
| 100.0 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 41.4 |
|
|
| 40.7 |
|
Labor costs |
|
| 37.1 |
|
|
| 35.3 |
|
Occupancy costs |
|
| 12.5 |
|
|
| 15.1 |
|
Other operating expenses |
|
| 6.6 |
|
|
| 4.7 |
|
Depreciation |
|
| 3.4 |
|
|
| 4.3 |
|
Amortization |
|
| 0.0 |
|
|
| 0.0 |
|
General and administrative |
|
| 5.1 |
|
|
| 9.3 |
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
| 106.1 |
|
|
| 109.3 |
|
Loss from operations |
|
| (6.1 | ) |
|
| (9.3 | ) |
INTEREST EXPENSE |
|
| (2.8 | ) |
|
| (3.1 | ) |
NET LOSS |
|
| (8.9 | )% |
|
| (12.4 | )% |
13 Week Period Ended March 29 (Fiscal 2020) compared to the 13 Week Period Ended March 31, (Fiscal 2019)
|
| 13 weeks ended, July 2, 2023 |
|
| 13 weeks ended, July 3, 2022 |
| ||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||
SALES |
| $ | 3,999,965 |
|
|
| 100.0 | % |
| $ | 3,524,881 |
|
|
| 100.0 | % |
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 1,608,175 |
|
|
| 40.2 |
|
|
| 1,311,373 |
|
|
| 37.2 |
|
Labor costs |
|
| 1,412,376 |
|
|
| 35.3 |
|
|
| 1,179,118 |
|
|
| 33.5 |
|
Occupancy costs |
|
| 148,736 |
|
|
| 3.7 |
|
|
| 261,282 |
|
|
| 7.4 |
|
Other operating expenses |
|
| 198,629 |
|
|
| 5.0 |
|
|
| 212,314 |
|
|
| 6.0 |
|
Depreciation and amortization |
|
| 192,520 |
|
|
| 4.8 |
|
|
| 109,286 |
|
|
| 3.1 |
|
General and administrative |
|
| 519,077 |
|
|
| 13.0 |
|
|
| 455,656 |
|
|
| 12.9 |
|
Total costs and expenses |
|
| 4,079,513 |
|
|
| 102.0 |
|
|
| 3,529,029 |
|
|
| 100.1 |
|
Income (loss) from operations |
|
| (79,548 | ) |
|
| (2.0 | ) |
|
| (4,148 | ) |
|
| (0.1 | ) |
UNREALIZED GAIN ON MARKETABLE SECURITIES |
|
| (92,920 | ) |
|
| (2.3 | ) |
|
| (80,238 | ) |
|
| (2.3 | ) |
INTEREST AND OTHER INCOME |
|
| 1,761 |
|
|
| 0 |
|
|
| 9,473 |
|
|
| .3 |
|
INTEREST EXPENSE |
|
| (24,376 | ) |
|
| (0.6 | ) |
|
| (26,190 | ) |
|
| (.7 | ) |
EQUITY IN AFFILIATE LOSS |
|
| (90,651 | ) |
|
| (2.3 | ) |
|
| (14,172 | ) |
|
| (.4 | ) |
INCOME TAX BENEFIT |
|
| 52,000 |
|
|
| 1.3 |
|
|
| 23,000 |
|
|
| .6 |
|
NET (LOSS) |
| $ | (233,734 | ) |
|
| (5.8 | )% |
| $ | (92,275 | ) |
|
| (2.6 | )% |
Net Revenues:
Net sales for Fiscal 2020 decreased $74,403the second quarter of 2023 increased $475,084 or 5.4%13.5% to $1,303,430$3,999,965 from $1,377,833$3,524,881 in Fiscal 2019.2022. The decreasesales increase resulted from acquiring three restaurants in sales was principally2022, contributing $2,025,000 in revenue during the resultquarter. Sales also reflect the closing of the West St.St Paul Burger Time location being closed for approximately seven weeks as a result of a fire in the location, and the effectsfourth quarter of weather conditions during the period.2022.
RestaurantFor BTND locations open at quarter-end, second-quarter restaurant sales for the period ranged from a low of $99,384 (excluding West St. Paul)$113,000 to a high of $185,500 and$333,000. The average sales for each Burger Time unit open at quarter-end were approximately $225,000 in 2023, an increase of approximately 2.94% from $219,000 in 2022.
Restaurant Operating Costs:
During 2023, restaurant operating costs (which refer to all the costs associated with operating our restaurants but do not include general and administrative expenses and depreciation and amortization and the gain on the sale of property and equipment) increased to 84.2% in restaurant sales in 2023 from 84.1% in 2022. For all of our locations, we continued to see price inflation on input costs, including food and labor, and the matters discussed in the “Cost of Sales,” “Labor Costs,” and “Occupancy and Other Operating Costs” sections below.
17 |
Table of Contents |
The impact of cost increases and the addition of three non-BTND restaurants during the period was approximately $146,000 in 2020 declining from $154,000 in 2019.year may be detailed as follows:
Restaurant operating costs for the period ended July 3, 2022 |
| $ | 2,964,087 |
|
Increase in food and paper costs |
|
| 296,802 |
|
Increase in labor costs |
|
| 233,258 |
|
Decrease in occupancy and operating cost |
|
| (126,231 | ) |
Restaurant operating costs for the periods ended July 2, 2023 |
| $ | 3,367,916 |
|
Costs of Sales - food and paper:
Cost of sales - food and paper - for Fiscal 20202023 increased as a percentage of sales slightly to $540,100 (41.4%40.2% of restaurant sales)sales from $560,271 (40.7%37.2% of restaurant sales)sales in Fiscal 2019.2022. For all of our locations, we continued to see price inflation on input costs, including food costs, where ground beef costs are approximately 40% higher compared to the second quarter of 2022. The increase also results from including Keegan’s, which operates at a higher food cost than our remaining stores. This overall increase was mainly due to an increase in average beef pricesis offset by results from PIE which, because of approximately 18% to an average of $2.51 per pound in 2020.its coffee-focused menu, has significantly lower food and paper costs than BTND, Keegan’s and Village Bier Garten.
Restaurant OperatingLabor Costs:
Restaurant operating costs (which referIn 2023, labor and benefits cost increased to all the costs associated with the operation of our restaurants, but do not include general and administrative costs and depreciation and amortization) as a percent35.3% of restaurant sales increased slightly to 97.6%from 33.5% in 2020 from 95.8% in Fiscal 2019. This was due primarily to matters discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.
Labor Costs
For Fiscal 2020, labor and benefits costs decreased slightly by $2,936 to $483,309 (increasing to 37.1% of restaurant sales) from $486,245 (35.3% of restaurant sales) in Fiscal 2019.2022. The increase is the net result of higher BTND activity in 2023 and higher wages because of labor shortages in some of our markets, contributing to an unfavorable utilization of the percentage was the result minimum staffing level required as sales declined. The Company continued tofixed portion of labor costs. PIE and Keegan’s businesses run at higher labor costs than BTND. We benefit from virtually nominimal turnover in its unit restaurant management which tends to cause unfavorable variations in labor costs.management. Payroll costs are semi-variable, in nature, meaning that they do not decrease proportionally to decreases in revenue,revenue; thus, they increase as a percentage of restaurant sales when there is a decrease in restaurant sales.
Occupancy and Other Operating ExpensesCosts:
For Fiscal 2020,2023, occupancy and other expensescosts decreased $23,453 to 19.1%8.7% of sales or $248,762 from $272,215 (19.8%$347,365 compared to $473,596, or 13.4% of restaurant sales)sales in Fiscal 2019.2022, principally because of a reversal in previously accrued property taxes related to a property in St. Louis, Missouri. The property was deeded to the taxing authority in lieu of payment and any further liability. These costs were also impacted by three new leased restaurant locations added in 2022, which operate at a higher occupancy cost than our BTND locations, where we own most of the real estate.
Depreciation and Amortization Expense:Costs:
For Fiscal 2020,2023, depreciation and amortization decreased 24.5% or $14,415costs increased by $83,234 to $46,115 (3.5%$192,520 (4.8% of sales) from $60,512 (4.4%$109,286 (3.1% of sales) in Fiscal 2019.2022. Depreciation and amortization costs increased principally due to the purchase of three restaurants during 2022 for approximately $2.4 million and capital additions in the last two years, including major parking lot repairs and significant replacement of HVAC equipment at several locations. These capital additions offset the decrease in depreciation and amortization resulting from a significant amount of our equipment reaching a fully depreciated status.
General and Administrative Costs
General and administrative costs decreased 51.8%in 2023 increased 0.1% of sales, or $61,568$63,421, to $519,077 (13.0%) from $127,784 (9.3%$455,656 (12.9% of sales) in Fiscal 20192022. The dollar amount increase was due to $66,216 (5.1% of sales) in Fiscal 2020. The increase in general and administrative costs is primarily attributable to a reduction in officer salary of approximately $37,500our acquiring three businesses during the period2022 and the eliminationongoing costs of operating as a general manager position.public company, including administrative salaries and audit expenses.
Income (loss) from OperationsOperations:
The loss from operations was $79,777$79,548 in Fiscal 20202023 compared to a loss from operations of $129,177$4,148 in Fiscal 2019.2022. The change in income from operations in Fiscal 20202023 compared to Fiscal 201202022 was primarily due primarily to the decline in BTND sales and poor margins at Keegan’s, together with other matters reductiondiscussed in Generalthe “Net Revenues,” “General and Administrative ExpenseCosts,” and “Restaurant Operating Costs,” sections above.
18 |
Table of Contents |
Interest expense:
In 2023, our interest expense decreased by $1,814 to $24,376 (0.6% of restaurant sales) from $26,190 (1.4% of restaurant sales) in 2022. The decrease in the percentage of sales is due to the sales from the newly acquired businesses in 2022. The actual dollar value only decreased slightly.
Interest, Dividends and Other Income:
Interest and dividend income was $1,761 in 2023, resulting from income earned on the Company’s available cash balance.
Net Income (loss):
The net loss was $285,734 in 2023, compared to a net loss of $115,275 in 2022. The change in 2023 from 2022 was primarily attributable to the matters discussed in the “Net Revenues” andRevenues,” “Restaurant Operating Costs” sections above.Costs,” “General and Administrative Costs,” and “Other Income” sections.
Result of operations for the 26 weeks ending July 2, 2023, compared to the 26 weeks ending July 3, 2022.
The following table sets forth, for the periods indicated, our Consolidated Statements of Operations expressed as a percentage of total revenues. The percentages may not add because of rounding.
|
| 26 weeks ended, July 2, 2023 |
|
| 26 weeks ended, July 3, 2022 |
| ||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||
SALES |
| $ | 7,070,763 |
|
|
| 100.0 | % |
| $ | 5,598,076 |
|
|
| 100.0 | % |
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 2,898,498 |
|
|
| 41.0 |
|
|
| 2,032,956 |
|
|
| 36.3 |
|
Labor costs |
|
| 2,615,136 |
|
|
| 37.0 |
|
|
| 1,786,828 |
|
|
| 31.9 |
|
Occupancy costs |
|
| 505,861 |
|
|
| 7.2 |
|
|
| 435,920 |
|
|
| 7.8 |
|
Other operating expenses |
|
| 394,243 |
|
|
| 5.6 |
|
|
| 332,181 |
|
|
| 5.9 |
|
Depreciation and amortization |
|
| 356,027 |
|
|
| 5.0 |
|
|
| 178,701 |
|
|
| 3.2 |
|
Gain on sale of assets held for sale |
|
| (313,688 | ) |
|
| (4.4 | ) |
|
| - |
|
|
| - |
|
General and administrative |
|
| 944,992 |
|
|
| 13.4 |
|
|
| 746,717 |
|
|
| 13.3 |
|
Total costs and expenses |
|
| 7,401,069 |
|
|
| 104.7 |
|
|
| 5,513,303 |
|
|
| 98.5 |
|
Income (loss) from operations |
|
| (330,406 | ) |
|
| (4.7 | ) |
|
| 84,773 |
|
|
| 1.5 |
|
UNREALIZED LOSS ON MARKETABLE SECURITIES |
|
| (23,064 | ) |
|
| (.3 | ) |
|
| (80,238 | ) |
|
| (1.7 | ) |
INTEREST AND OTHER INCOME |
|
| 90,809 |
|
|
| 1.3 |
|
|
| 9,473 |
|
|
| .2 |
|
INTEREST EXPENSE |
|
| (49,909 | ) |
|
| (.7 | ) |
|
| (54,461 | ) |
|
| (1.0 | ) |
EQUITY IN AFFILIATE LOSS |
|
| (145,050 | ) |
|
| (2.1 | ) |
|
| (14,172 | ) |
|
| - |
|
INCOME TAX (EXPENSE) BENEFIT |
|
| 82,000 |
|
|
| 1.2 |
|
|
| 5,000 |
|
|
| .1 |
|
NET (LOSS) |
| $ | (375,520 | ) |
|
| (5.3 | )% |
| $ | (49,625 | ) |
|
| (0.9 | )% |
Net Revenues:
Net sales for 26-week period representing the first half of fiscal 2023 increased $1,472,687 or 26.3% to $7,070,763 from $5,598,076 in fiscal 2022. The increase in sales was principally the result of a favorable impact in the 26 weeks of three acquired restaurants which contributed for a partial period in 2022 and contributed a total of approximately $3.7 million in 2023 offset by a decline in sales at BTND of $164,000 excluding the West St. Paul location closed date in 2022.
Burger Time unit sales for the 26 weeks ranged from a low of approximately $207,000 to a high of approximately $587,000. Average sales for each Burger Time unit were approximately $398,000 in 2023, a decline from approximately $404,200 in the same 26-week period in 2022. The sales decline in the first half of 2023 resulted from a return to pre-covid customer purchasing patterns as competitive dining options returned to normal, labor challenges resulting in some contraction of hours, and poorer weather conditions relative to the year-earlier period.
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Costs of Sales - food and paper:
Cost of sales - food and paper for the first half of fiscal 2023 increased to 41.0% from 36.3% of restaurant sales in the same period in 2022. This increase resulted from increased food costs overall; for example, the price of eggs increased tremendously in 2023.
Restaurant Operating Costs:
Restaurant operating costs, which are associated with operations, not including general and administrative expenses, and depreciation and amortization, increased as a percentage of restaurant sales to 90.7% in 2023 from 82.0% in fiscal 2022. This increase was due to the increase in sales activity from new locations and its impact, as further discussed in the "Cost of Sales," "Labor Costs," and "Occupancy and Other Operating Costs" sections below.
Labor Costs:
For the first half of fiscal 2023, labor and benefits cost increased to 37.0% of restaurant sales from 31.9% in fiscal 2022. Shortages in staffing levels combined with higher hourly wage rates at all locations increased the overall labor percentage. The hiring markets have become more challenging in terms of filling open positions. Payroll costs are semi-variable, meaning they do not decrease proportionally to decreases in revenue. Thus, they increase as a percentage of restaurant sales when there is a decrease.
Occupancy and Other Operating Expenses:
For the first 26 weeks of fiscal 2023, occupancy and other expenses decreased to 12.8% of sales from 13.7% in 2022 principally because of a reversal in previously accused property taxes related to a property in St. Louis, Missouri. Many of these costs are fixed, and the percentage reflects lower maintenance costs offset by higher lease occupancy costs at our new locations
Depreciation and Amortization Expense:
Depreciation and amortization expenses in the first half of fiscal 2023 increased by $177,326 to $356,027 (5.0% of sales) from $178,701 (3.2% of sales) in the first half of fiscal 2022 and are the result of the purchase of three new restaurants and capital additions at several of our locations.
General and Administrative Costs:
General and administrative costs increased 26.6% or $198,275 to $944,992, from $746,717 (13.3% of sales) in the first half of fiscal 2022 due to acquiring these businesses during 2022 and the ongoing costs of operating as a public company.
Income from Operations:
Operating loss was $330,306 in the first half of fiscal 2023 compared to income of $84,773 in the first half of fiscal 2022. The change in income from operations in the first half of fiscal 2023 compared to fiscal 2022 was due primarily to the increase in general and administrative expenses, which included higher costs associated with the transition to a public company near the end of 2021, including the "Net Revenues" and "Restaurant Operating Costs" sections above.
Restaurant-level EBITDA:
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company useswe use restaurant-level EBITDA (earnings before interest, taxes, depreciation, and amortization), which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and we believe, to investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. ThisHowever, this measure is not however, indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-levelAccordingly, restaurant-level EBITDA should not be considered a substitute for or superior to operating income, which is calculated in accordance with GAAP, and the reconciliations to operating income set forth below should be carefully evaluated.
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We define restaurant-level EBITDA as operating income before pre-opening costs if any, general and administrative costs, depreciation, and amortization and impairment charges.amortization. General and administrative costsexpenses are excluded as they are generally not specifically identifiableunrelated to restaurant specificrestaurant-specific costs. Depreciation and amortization and impairment charges are excluded because they are not ongoing controllable cash expenses and they are not relatedunrelated to the health of ongoing operations.operations’ health.
|
| 13-Week Period |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenues |
| $ | 1,303,430 |
|
| $ | 1,377,833 |
|
Reconciliation: |
|
|
|
|
|
|
|
|
(Loss) from operations |
|
| (79,777 | ) |
|
| (129,177 | ) |
Depreciation and amortization |
|
| 44,820 |
|
|
| 59,235 |
|
General and administrative, corporate level expenses |
|
| 66,216 |
|
|
| 127,784 |
|
Restaurant-level EBITDA |
|
| (1,598 | ) |
|
| 59,119 |
|
Restaurant-level EBITDA margin |
|
| 0.0 | % |
|
| 4.2 | % |
|
| 26 Weeks ended, |
| |||||
|
| July 2, 2023 |
|
| July 3, 2022 |
| ||
Revenues |
| $ | 7,070,763 |
|
| $ | 5,598,076 |
|
Reconciliation: |
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| (330,306 | ) |
|
| 84,773 |
|
Depreciation and amortization |
|
| 356,027 |
|
|
| 178,701 |
|
General and administrative, corporate-level expenses |
|
| 944,992 |
|
|
| 746,717 |
|
Restaurant-level EBITDA |
| $ | 970,713 |
|
| $ | 1,010,191 |
|
Restaurant-level EBITDA margin |
|
| 13.7 | % |
|
| 18.0 | % |
Liquidity and Capital Resources
The condensed consolidated financial statements have been prepared on a going concern basis. For the period26 weeks ending March 29,2020,July 2, 2023, the Company incurred a netearned an after-tax loss of $116,244. Cash flow provided by operating activities increased$375,520 due to $81,438poorer-than-expected results at the Company’s two Florida locations and generally lower-than-expected sales in 2020 from a negative $25,640the second quarter combined with the equity in fiscal 2019 principally as a resultthe loss of increases in vendor accounts payable. On March 29, 2020,the unconsolidated Bagger Dave’s business of $145,050. At July 2, 2023, the Company had $310,134$5,704,879 in cash and cash equivalents and a working capital deficit of $535,201 an$5,940,087.
Our primary requirements for liquidity are to fund our working capital needs, capital expenditures, and general corporate needs, as well as to invest in or acquire businesses that are synergistic with our business. Our operations do not require significant working capital, and, like many restaurant companies, we may operate with negative working capital. Our primary liquidity and cash flow sources are operating cash flows and cash on hand. We use this to service debt, maintain our stores to operate efficiently, and increase of $65,875our working capital. Our working capital position benefits from the year-end deficitfact that we collect cash from sales from our customers at the point of $468,326.purchase or within a few days from our credit card processor. Generally, payments to our vendors are not due for thirty days.
Summary of Cash Flows
Cash Flows Provided (used) by Operating Activities
The coronavirus (“Covid-19”) global pandemic is significantly harming2023 26-week period resulted in cash flow used of $111,747 compared to cash flow from operations of $498,068 in the United States economy. Many businessesprior year. The winter months have closed, and many citizens are subject to “shelter at home” governmental orders. At this time, all of our units continue to operate, however, it is impossible to predict eitherhistorically been seasonally the near-term effects or the ultimate impactslowest part of the Covid-19 pandemic onCompany’s business, and the Company’s operating results and financial condition as the situation is rapidly evolving. A cash flow forecast for the next 12 months preparedfirst quarter of 2023 was impacted by management has been adjusted to reflect recent offers by banks, in the wake of the COVID-19 Pandemic, including the Company’s principal lenders, Northview Bank and Bremer Bank, to abate all loan payments for the next three months. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, and additional avenues of relief may be available to small businesses through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. Given the absence of any funding alternatives, the Company applied for and was granted loans totaling $460,400 under the Small Business Administration Payroll Protection Program. The Company expects to use these funds to meet payroll expenses. The Company’s BTNDDQ, L.L.C. subsidiary also received a $27,500 no-interest loan from a State of Minnesota Small Business Emergency loan program. As a result, the Company expects to have sufficient cash assets to meet its obligations for the next twelve months. No adjustments have been made relating to recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.
Qualitative and Quantitative Disclosure about Market Riskharsh winter weather.
Commodity Price RiskCash Flows Provided by Investing Activities
We are subject to volatility in food costs as aIn the 26-week period, cash from investing activities was $4,996,865, primarily the result of market risk associated with commodity prices. Our abilityproceeds at maturity of $5 million in Treasury Bills held at the end of 2022 and proceeds from the sale of the West St. Paul location in 2022. The Company continues to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate. We do not enter into pricing agreements with any of our suppliers to manage these risks. Beef is our largest single food purchase and the price we pay for beef fluctuates weekly basedfocus on beef commodity prices. We do not currently manage this risk with commodity future and option contracts. A ten percent increase in the cost of beef would result in approximately $98,000 of additional food costs for the Company annually.identifying potential acquisition opportunities.
Seasonality and InflationCash Flows Used in Financing Activities
Seasonal factors and the timingA significant portion of holidays cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically slightly lower in the first and fourth quarters due to holiday closures and the impact of cold weather at all our locations. Adverse weather conditions may also affect customer traffic, especially in the first and fourth quarters, when customers do not use our outdoor seating areas, which impacts the use of these areas and may adversely affect our revenue.
Management does not believe that inflation has had a material effect on income during the 2019 or 2018 fiscal years. Increases in food, labor or other operating costs could adversely affect the Company’s operations. Incash flow is allocated to service the past, however, the Company generally has been able to increase menu prices or modify its operating procedures to substantially offset increases in its operating costs.
The costCompany’s debt and purchase of construction has also increased in recent history. We expect that costs to construct new restaurants in our existing and contiguous markets will be more expensive than several years ago, but we expect to achieve higher restaurant sales volumes and/or margin improvements to offset these or addition construction cost increases. Construction cost increases could have an adverse effect on our business and operations, particularly for new restaurant development.
Our business is subject to a wide range of federal, state and local regulations, which are subject to change in ways we cannot now anticipate. We are uncertain as to the effect, if any, that changes in the regulatory environment may have on our Company.Treasury shares.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Recent Accounting PronouncementsContractual Obligations
There has been no impactAs of July 2, 2023, we had approximately $2.6 million in contractual obligations relating to our financial statementsamounts due under mortgages on the real property on which stores are situated. Our monthly required payment is approximately $32,000 and our results$2,343,000 of operations and financial condition as the resultfuture lease payments requiring a total minimum monthly payment of the adoption of Recent Accounting Pronouncements, see “Part I, Item 1, Note 1. Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements included in this quarterly report.approximately $25,000.
Critical Accounting Policies and Estimates
Our discussion and analysis of operating results and financial condition are based upon our financial statements. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
Our critical accounting policies are those that materially affect our financial statements and involve subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates.
Jumpstart Our Business Startups Act of 2012
We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may take advantage of these exemptions until we are no longer an emerging growth company. We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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ITEM 4. CONTROLS AND PROCEDURES.PROCEDURES
Disclosure Controls and Procedures
Our management carried out an evaluation,Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the supervisionSecurities Exchange Act is recorded, processed, summarized, and withreported within the participation ofperiods specified by the SEC’s rules and forms. Disclosure controls are also designed to ensure that this information is accumulated and communicated to our principalmanagement, including our chief executive officer and principalchief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of July 2, 2023, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined inunder Rule 13a-15(e) of13a-15(b) promulgated under the Exchange Act)Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of July 2, 2023, our disclosure controls and procedures were not effective at a reasonable assurance as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officerreport because we lack the necessary corporate accounting resources to maintain adequate segregation of duties. We did not perform an effective risk assessment or monitor internal controls over financial reporting. Management is developing and principalimplementing a series of accounting systems, procedure changes, and internal controls intended to provide adequate controls over financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.reporting.
The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controlinternal control over Financial Reportingfinancial reporting
There have been no significant changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during our most recent fiscal quarter that havehas materially affected or areis reasonably likely to materially affect, our internal control over financial reporting.
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There are presently no pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Since the date on which the Company filed its annual report on Form 10-K and through the date of this quarterly report, the Company did not sell any securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None
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Exhibit | Description | |
101.INS |
| |
| XBRL Instance Document | |
101.SCH |
| |
| XBRL Taxonomy Extension Schema Document | |
101.CAL |
| |
| XBRL Taxonomy Extension Calculation | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB |
| |
| XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BT BRANDS, INC. | ||
| |||
| |||
Date: | By: | /s/ | |
|
| ||
|
| ||
|
|
| |
| Name: | Kenneth Brimmer |
|
| Title: | Chief Operating Officer and
|
|
25 |