See Notes to Consolidated Condensed Financial Statements

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 (the "Company," "we," "our," "us," "BT Brands," or "BT") and have been prepared in accordance with the US generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Securities and Exchange Commission ("SEC") requirements for Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated in consolidation. The financial statements have been prepared on a basis consistent in all material respects with the accounting policies for the fiscal year ending January 2, 2022.1, 2023. In our opinion, all regular and recurring adjustments 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 October 2, 2022,1, 2023, does not include all the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of January 2, 2022,1, 2023, and the related notes included in our Form 10-K for the fiscal year ending January 2, 2022.1, 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, and the differences could be material.

The Company

BT Brands, Inc. (the “Company”) was incorporated as Hartmax of NY Inc. on January 19, 2016. Effective July 30, 2018, itthe Company acquired 100% of BTND, LLCLLC.

We operate restaurants in the eastern two-thirds of the United States. As of October 1, 2023, including our 41.2% owned Bagger Dave’s business, we operated eighteen restaurants comprising the following:

Our Dairy Queen store is operated under a franchise agreement with International Dairy Queen. We pay royalty and advertising payments to the franchisor as required by the franchise agreement. Effective October 17, 2023, we agreed with International Dairy Queen to sell the business, which has a current book value at October 1, 2023, of $440,384, including remaining goodwill, to an approved buyer.  Under the terms of the agreement with International Dairy Queen, we will continue to operate under the agreement for six months, during which time we plan to sell the business.

Business

As of October 2, 2022,1, 2023, BT Brands owned and operated thirteen restaurants, including nineeight Burger Time restaurants in the North Central region of the United States, a Dairy Queen fast-food franchised location in suburban Minneapolis, Minnesota, collectively ("BTND"). Following the end of the third quarter on November 6, 2022, the Burger Time in West St. Paul, Minnesota was permanently closed. The Company is considering alternate uses for the site. We own and operate Keegan's Seafood Grille ("Keegan's"), a dine-in restaurant located in Florida, Pie In The Sky Coffee and Bakery ("PIE"), a casual dining coffee shop bakery located in Woods Hole, Massachusetts, and the Village Bier Garten (“VBG”), a German-themed restaurant in Cocoa, Florida. Our Burger Time restaurants feature a variety of burgers and other affordable foods, sides, and soft drinks. Our Dairy Queen restaurant offers a proscribed menu consisting of burgers, chicken, sides, ice cream, otherproprietary desserts, novelty items, and various beverages. Keegan's Seafood Grille has operated in Indian Rocks Beach, Florida, for more than thirty-five years and offers a variety of traditional fresh seafood items for lunch and dinner. The menu at Keegan's includes beer and wine. PIE features an array of fresh baked goods, freshly made sandwiches, and our locally roasted coffee. The Village Bier GartenVBG is a full-service restaurant and bar featuring a German-themed menu, specialty imported European beers, and regular entertainment. Our revenues are derived from food and beverages at our restaurants;restaurants, retail goods such as apparel, private-labeled "Keegan's Hot Sauce," and other souvenir items, which account for an insignificant portion of our income.

On June 2, 2022, BT Brands purchased 11,095,085 common shares, representingor 41.2%, of Bagger Dave's Burger Tavern, Inc. ("Bagger Dave's"). We acquired the shares from itsthe founder of Bagger Dave’s for $1,260,000,$1,390,000, or approximately $0.114$.114 per share. Following the investment, two representatives of BT Brands were appointed to two of the three positions oncomprise Bagger Dave's Board of Directors. Bagger Dave's specializes in locally sourced, never-frozen prime rib recipe burgers, all-natural lean turkey burgers, hand-cut fries, locally crafted beers on draft, milkshakes, salads, black bean turkey chili, and pizza. The first Bagger Dave's opened in January 2008 in Berkley, Michigan. There are currently six Bagger Dave's restaurants, including four in Michigan and single units in Ft. Wayne, Indiana, and Centerville, Ohio.

Our Dairy Queen location is operated under a franchise agreement with International Dairy Queen. We pay royalty and advertising payments to the franchisor as the franchise agreement requires. Following the end of the quarter, we entered into an agreement to terminate the franchise agreement with International Dairy Queen. We plan to sell the Dairy Queen business.

Fiscal Year PeriodPeriods

BT Brand's 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 a 52-week year. Fiscal 2023 is 52 weeks ending December 31, 2023, and fiscal 2022 iswas a 52-week year52-weeks ending January 1, 2023, and2023. References in this report to periods refer to the 39-week periods in the respective fiscal 2021 was a 52-week year ending January 2, 2022.periods

Cash and Cash Equivalents

Cash includes United States Treasury Bills with original maturities at the time of purchase of 90 days or less. Our bank deposits often exceed the amount insured by the Federal Deposit Insurance Corporation. In addition, we maintain cash deposits in brokerage accounts, including money market funds above the insured amount. We do not believe there is a significant risk related to cash.

InvestmentInvestments

Our 41.2%As of October 1, 2023, noncurrent investments include our net equity method investment of $811,615 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 Bagger Dave's is accounted for using the "equity method"loan to NGI, we attributed $75,000 to the value of accounting. Under the equity method, our sharereceived, 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.

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 39 weeks ending October 1, 2023, Bagger Dave’s had sales of $5,009,164 and a net income (loss)loss of $617,164. For the 39 weeks, our 41.2% equity share in the loss was approximately $254,272 and is recognized as income (loss)included in our condensed consolidated statementsthe accompanying statement of income and added to (subtracted from) the investment account. Dividends received, if any, are deducted from the investment. operations.

See Note 98 for information regarding our related party investment.

Fair Value of Financial Instruments

Our 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:

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.

On October 1, 2023, the cost of marketable securities includes a bond fund at a cost of $ 574,836  and common stocks at a cost of $792,137 for a total cost of $1,366,973 prior to a mark-to-market reduction of $110,205. 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 October 1, 2023, at the level-one quoted market price in an active market of $1,366,973.

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.  

Investments in marketable equity securities are carried at fair value. On October 2, 2022, marketable securities consisted of exchange-listed equity securities with a historical cost of $808,619. These investments are reflected in the accompanying financial statements on October 2, 2022, at the level-one fair value quoted in an active market of $653,399.

Receivables

Receivables consist 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, ranging from three to thirty years.

We review long-lived assets to determine if the carrying value of these assets is recoverable based on estimated cash flows. Assets are evaluated at the lowest level, for which cash flows can be identified at the restaurant level. In determining future cash flows, estimates are made by us forwe estimate the future operating results of each 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.

Goodwill and other Intangible Assets and Other Assets

Goodwill is the excessnot amortized.  Goodwill is tested for impairment at least annually. The cost of the purchase priceother intangible assets is amortized over the estimatedexpected useful life. Other assets includes the allocated fair value of the acquired business assets. In accordance with GAAP, goodwillDairy Queen franchise agreement which is not amortized. We periodically assess goodwill for impairment and have determined there is no goodwill impairment at October 2, 2022. 

Intangible Assets

Intangible assets with estimated finite lives result from business acquisitions and include the allocated cost of trademarks, tradenames, a covenant not to compete, websites, and social media accounts. The costs of purchased intangible assets are recorded at the estimated value and arebeing amortized over 4 to 2014 years.

AssetsAsset Held for Sale

As of October 2,We closed the Burger Time store in West St. Paul in 2022 a property inand the St. Louis area, which has a carrying value of $0, and a property in Richmond, Indiana, are heldstore in 2018. The West St. Paul location sale was completed in February of 2023 for a gain of $313,688. The Richmond location is currently offered for sale. We believe the Richmond property will be sold at or above its current-carrying cost. The remaining book valuecurrent carrying value. In the second quarter of $258,751 is included2023, we completed the disposition of the St. Louis property in Other Assets inlieu of unpaid property taxes, eliminating approximately $180,000 of previously accrued property taxes, which was reflected as a reduction of occupancy costs during the accompanying balance sheet.second quarter of this fiscal year.

Income Taxes

The Company provides for income taxes underfollows Accounting Standards Codification (ASC), 740, Accounting for Income Taxes. ASC 740 uses anusing the asset and liability approach 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. They are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. If necessary, we provide a valuation allowance 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 October 2, 2022,1, 2023, we estimatedused a current tax provision at the net combined federal and state rate of approximately 27.5%. in estimating our current tax benefit.

The Company has no accrued interest or penalties relating to income tax obligations. There currently are no federal or state examinations in progress. The Company has not had any federal or state tax examinations since its inception. All periods since inception remain open for inspection.

Per Common Share Amounts

Net income per common 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 or loss per share is calculated 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 per share amounts if their effect is anti-dilutive. There were no dilutive shares for the periods ending in 20222023 and 2021.2022.  

 NNOTEOTE 2 – ACQUISITIONSINTANGIBLE ASSETS

Restaurant Acquisition - Keegan's

On March 2, 2022, we purchasedAt October 1, 2023, the netvalue of acquired assets, Intangible Assets being amortized are the following

Tradename assets are being amortized over 15 years at $26,000 annually. The total amortization of Keegan's, a fresh seafood restaurant locatedintangible assets, including covenants not to compete, will approximate $58,900 in Indian Rocks Springs, Florida. Concurrent with the purchase, we entered a 131-month lease2023 and 2024, $40,500 in 2025, $26,200 per year thereafter following six years and $7,500 in 2037.

Total amortization expense for the approximately 2800 square foot space that Keegan's has occupied13 weeks was $12,221, and for more than 35 years. We acquired Keegan's tradename as part of the purchase and will continue to operate the business as Keegan's Seafood Grille. The purchase price39 weeks ending October 1, 2023, was approximately $1.15 million, paid in cash at closing.$54,486.

The acquisition of Keegan's was accounted for using the acquisition method of accounting following ASC 805 "Business Combinations." Accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired were recorded at their estimated fair values. The Company recorded provisional amounts and will complete the acquisition accounting once it finalizes its valuation analysis.

For the Keegan's acquisition, we provisionally recorded $204,211 in goodwill, representing the excess of fair value over the purchase price of the identifiable assets; the allocation to purchased goodwill is expected to be deductible for income tax purposes over fifteen years.

The following table presents the preliminary estimate of the fair value of the assets acquired and liabilities assumed in the transaction:

Restaurant AcquisitionNOTE 3 – Pie In the Sky Coffee and BakeryPROPERTY AND EQUIPMENT

On May 11, 2022, we purchased the net assets of PIE, a bakeryProperty and coffee shop located in Woods Hole, Massachusetts. Concurrent with the purchase, we entered into a 60-month lease, including three additional five-year renewal options. The lease covers the approximately 3,500 square feet PIE has operated in for more than 20 years. We acquired the Pie in the Sky tradename and the piecoffee.com website URL as partequipment consisted of the purchasefollowing:

Depreciation expense for the 39-week periods in 2023 and will continue to operate as Pie in the Sky. The purchase price2022 was approximately $1.16 million, including $1.15 million in cash paid at closing.$416,315 and $306,584, respectively.

The acquisition of PIE was accounted for following ASC 805 "Business Combinations." Accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired were recorded at their estimated fair values based on information available asNOTE 4 - ACCRUED EXPENSES

Accrued expenses consisted of the closing date. We recorded provisional amounts as of the purchase date and will complete the acquisition accounting once we finalize the valuation analysis.following at: 

As a result of the PIE acquisition, we provisionally recorded $284,220 in goodwill, representing the excess of fair value over the purchase price of the identifiable assets, which is expected to be deductible for income tax purposes over fifteen years.

The following table presents our preliminary estimate of the fair value of the assets acquired and liabilities assumed in the PIE transaction is:

Restaurant Acquisition - Village Bier Garten Restaurant

On August 4, 2022, we completed the purchase of the assets and the business operating as Van Stephan Village Bier Garten ("VBG"), a full-service bar and restaurant in Cocoa, Florida. The restaurant features a German-themed menu, specialty imported European beers, and regular entertainment. The purchase price was $690,000, paid in cash at closing. Concurrent with the purchase, we entered into a five-year lease with three five-year renewal options for the property currently occupied by the business. The terms of the triple net lease call for an initial monthly rent of $8,200.

The following table presents our preliminary estimate of the fair value of the assets acquired and liabilities assumed in the VBG transaction is: