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: | |
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or | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _________ to |
_______
Commission File Number: 333-23323333-233233
BT BRANDS, INC. |
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) | |
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405 Main Avenue West, Suite 2D, West Fargo, ND | 58078 | ||
(Address of principal executive offices) | (Zip Code) |
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(701) 277-0080 | ||
(Registrant’s telephone number, including area code) | ||
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NONE | ||
(Former name former address and former fiscal year if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act: | ||
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Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
common stock, |
| BTBD |
| The NASDAQ Stock Market |
warrants to purchase common stock | BTBDW | The NASDAQ Stock Market |
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 filer | ☒ | Smaller reporting company | ☒ | ||
|
| Emerging Growth Company | ☒ |
If an emerging growth company, indicate by 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
At May 12, 2020,November 16, 2021, there were 8,095,0046,447,506 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 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 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 such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made 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 20192020 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2020.March 11, 2021. 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
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3 |
PART I — FINANCIAL INFORMATION
BT BRANDS, INC. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
BT BRANDS, INC. AND SUBSIDIARY
|
| October 3, 2021 (Unaudited) |
|
| January 3, 2021 |
| ||
ASSETS |
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| |||
CURRENT ASSETS |
|
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|
|
|
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Cash |
| $ | 2,078,812 |
|
| $ | 1,321,244 |
|
Receivables |
|
| 31,751 |
|
|
| 19,030 |
|
Inventory |
|
| 69,443 |
|
|
| 60,576 |
|
Prepaid expenses and other current assets |
|
| 66,366 |
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|
| 5,348 |
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Total current assets |
|
| 2,246,372 |
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|
| 1,406,198 |
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PROPERTY AND EQUIPMENT, net |
|
| 1,546,038 |
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| 1,632,457 |
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LAND AND BUILDINGS HELD FOR SALE |
|
| 258,751 |
|
|
| 258,751 |
|
INVESTMENT IN RELATED COMPANY |
|
| 75,000 |
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| 75,000 |
|
OTHER ASSETS, net |
|
| 15,200 |
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| 16,759 |
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Total assets |
| $ | 4,141,361 |
|
| $ | 3,389,165 |
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LIABILITIES AND SHAREHOLDERS' DEFICIT |
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CURRENT LIABILITIES |
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Current maturities of long-term debt |
| $ | 178,611 |
|
| $ | 245,306 |
|
Accounts payable |
|
| 419,007 |
|
|
| 270,487 |
|
Accrued expenses |
|
| 304,598 |
|
|
| 420,734 |
|
Income taxes payable |
|
| 177,088 |
|
|
| 97,978 |
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Total current liabilities |
|
| 1,079,304 |
|
|
| 1,034,505 |
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LONG-TERM DEBT, less current maturities |
|
| 3,005,113 |
|
|
| 2,938,983 |
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DEFERRED INCOME TAXES |
|
| 176,000 |
|
|
| 118,000 |
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Total liabilities |
|
| 4,260,417 |
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|
| 4,091,488 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' DEFICIT |
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Preferred stock, $.001 par value, 2,000,000 shares authorized, no shares outstanding at October 3, 2021 and January 3, 2021 |
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| 0 |
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| 0 |
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Common stock, $.002 par value, 50,000,000 authorized, 4,047,506 shares outstanding at October 3, 2021 and January 3, 2021 |
|
| 8,095 |
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| 8,095 |
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Additional paid-in capital |
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| 497,671 |
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| 497,671 |
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Accumulated deficit |
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| (624,822 | ) |
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| (1,208,089 | ) |
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Total shareholders' deficit |
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| (119,056 | ) |
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| (702,323 | ) |
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Total liabilities and shareholders' deficit |
| $ | 4,141,361 |
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| $ | 3,389,165 |
|
See Notes to Condensed Consolidated Financial Statements |
| 4 |
| Table of Contents |
BT BRANDS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
|
| 39 Weeks Ended, |
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| 13 Weeks Ended, |
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| October 3, 2021 |
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| September 27, 2020 |
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| October 3, 2021 |
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| September 27, 2020 |
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SALES |
| $ | 6,604,554 |
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| $ | 6,074,222 |
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| $ | 2,280,999 |
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| $ | 2,374,454 |
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COSTS AND EXPENSES |
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Restaurant operating expenses |
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Food and paper costs |
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| 2,580,224 |
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| 2,299,989 |
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| 944,171 |
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| 863,997 |
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Labor costs |
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| 1,794,499 |
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| 1,718,703 |
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| 607,780 |
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| 624,696 |
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Occupancy costs |
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| 436,196 |
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| 504,142 |
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| 132,542 |
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| 170,109 |
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Other operating expenses |
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| 355,024 |
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| 313,101 |
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| 102,943 |
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| 121,827 |
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Depreciation and amortization |
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| 173,799 |
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| 140,588 |
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| 60,405 |
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| 49,668 |
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Impairment of assets held for sale |
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| 0 |
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| 100,000 |
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| 0 |
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| 0 |
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General and administrative |
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| 295,397 |
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| 371,455 |
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| 74,415 |
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| 188,292 |
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Total costs and expenses |
|
| 5,635,139 |
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| 5,447,978 |
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| 1,922,256 |
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| 2,018,589 |
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Income from operations |
|
| 969,415 |
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| 626,244 |
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| 358,743 |
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| 355,865 |
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INTEREST EXPENSE |
|
| (161,148 | ) |
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| (136,347 | ) |
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| (32,916 | ) |
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| (45,188 | ) |
INTEREST INCOME |
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| 0 |
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| 92,707 |
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| 0 |
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| 28,507 |
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OTHER INCOME |
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| 0 |
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| 466,758 |
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| 0 |
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| 0 |
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INCOME BEFORE TAXES |
|
| 808,267 |
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| 1,049,362 |
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| 325,827 |
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| 339,184 |
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PROVISION FOR INCOME TAXES |
|
| (225,000 | ) |
|
| (234,000 | ) |
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| (90,000 | ) |
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| (85,000 | ) |
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NET INCOME |
| $ | 583,267 |
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| $ | 815,362 |
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| $ | 235,827 |
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| $ | 254,184 |
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NET INCOME PER COMMON SHARE - |
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Basic and Diluted |
| $ | 0.14 |
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| $ | 0.20 |
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| $ | 0.06 |
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| $ | 0.06 |
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WEIGHTED AVERAGE NUMBER OF SHARES USED |
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IN COMPUTING PER COMMON SHARE AMOUNTS - |
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Basic and Diluted |
|
| 4,047,506 |
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|
| 4,047,506 |
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|
| 4,047,506 |
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|
| 4,047,506 |
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See Notes to Condensed Consolidated Financial Statements |
| 5 |
| Table of Contents |
BT BRANDS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) |
(Unaudited) |
|
| Common Stock |
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| Additional Paid-in |
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| Accumulated |
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For the 39-week periods - |
| Shares |
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| Amount |
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| Capital |
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| (Deficit) |
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| Total |
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Balances, January 3, 2021 |
|
| 4,047,502 |
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| $ | 8,095 |
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| $ | 497,671 |
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| $ | (1,208,089 | ) |
| $ | (702,323 | ) |
Shares issued for fractional holdings |
|
| 4 |
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|
| 0 |
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| 0 |
|
|
| 0 |
|
|
| 0 |
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Net income |
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| - |
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|
| 0 |
|
|
| 0 |
|
|
| 583,267 |
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|
| 583,268 |
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Balances, October 3, 2021 |
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| 4,047,506 |
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| $ | 8,095 |
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| $ | 497,671 |
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| $ | (624,822 | ) |
| $ | (119,056 | ) |
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| Common Stock |
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| Additional Paid-in |
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| Accumulated |
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| |||||||||
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| Shares |
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| Amount |
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| Capital |
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| (Deficit) |
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| Total |
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Balances, December 29, 2019 |
|
| 4,047,506 |
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| $ | 8,095 |
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| $ | 497,671 |
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| $ | (1,902,081 | ) |
| $ | (1,396,315 | ) |
Net income |
|
| - |
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|
| 0 |
|
|
| 0 |
|
|
| 815,362 |
|
|
| 815,362 |
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Balances, September 27, 2020 |
|
| 4,047,506 |
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| $ | 8,095 |
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| $ | 497,671 |
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| $ | (1,086,719 | ) |
| $ | (580,953 | ) |
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| Additional |
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| |||||||||
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| Common Stock |
|
| Paid-in |
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| Accumulated |
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For the 13-week periods - |
| Shares |
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| Amount |
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| Capital |
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| (Deficit) |
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| Total |
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Balances, July 4, 2021 |
|
| 4,047,506 |
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| $ | 8,095 |
|
| $ | 497,671 |
|
| $ | (860,649 | ) |
| $ | (354,883 | ) |
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 237,827 |
|
|
| 235,828 |
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|
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|
|
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|
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|
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Balances, October 3, 2021 |
|
| 4,047,506 |
|
| $ | 8,095 |
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| $ | 497,671 |
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| $ | (624,822 | ) |
| $ | (119,056 | ) |
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|
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| Additional |
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| |||||||||
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| Common Stock |
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| Paid-in |
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| Accumulated |
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| |||||||||
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| Shares |
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| Amount |
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| Capital |
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| (Deficit) |
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| Total |
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Balances, June 28, 2020 |
|
| 4,047,506 |
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| $ | 8,095 |
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| $ | 497,671 |
|
| $ | (1,340,903 | ) |
| $ | (835,137 | ) |
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 254,184 |
|
|
| 254,184 |
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Balances, September 27, 2020 |
|
| 4,047,506 |
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| $ | 8,095 |
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| $ | 497,671 |
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| $ | (1,086,719 | ) |
| $ | (580,953 | ) |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)See Notes Condensed Consolidated Financial Statements
|
| March 29, 2020 |
|
| December 29, 2019 |
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ASSETS |
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CURRENT ASSETS |
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Cash |
| $ | 310,134 |
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| $ | 258,101 |
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Receivables |
|
| 5,782 |
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|
| 15,363 |
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Inventory |
|
| 52,973 |
|
|
| 56,432 |
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Prepaid expenses |
|
| 5,297 |
|
|
| 6,929 |
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Total current assets |
|
| 374,186 |
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|
| 336,825 |
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PROPERTY AND EQUIPMENT, net |
|
| 1,605,617 |
|
|
| 1,650,012 |
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LAND AND BUILDINGS HELD FOR SALE |
|
| 449,244 |
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|
| 449,244 |
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INVESTMENT IN NOTES RECEIVABLE FROM RELATED COMPANY |
|
| 207,000 |
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|
| 179,000 |
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OTHER ASSETS, net |
|
| 18,034 |
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|
| 18,459 |
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Total assets |
| $ | 2,654,081 |
|
| $ | 2,633,539 |
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LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES |
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|
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|
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|
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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 |
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|
|
|
|
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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 |
|
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|
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 |
|
| 6 |
| Table of Contents |
BT BRANDS, INC. AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
|
| 39 Weeks Ended |
|
| 39 Weeks Ended |
| ||
|
| October 3, 2021 |
|
| September 27, 2020 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net Income |
| $ | 583,267 |
|
| $ | 815,362 |
|
Adjustments to reconcile net income to net cash provided by operating activities- |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 173,799 |
|
|
| 140,588 |
|
Amortization of debt issuance cost included in interest expense |
|
| 55,555 |
|
|
| 3,882 |
|
Deferred taxes |
|
| 58,000 |
|
|
| (10,000 | ) |
Payment on in-kind interest |
|
| 0 |
|
|
| 39,368 |
|
Impairment of assets held for sale |
|
| 0 |
|
|
| 100,000 |
|
Changes in operating assets and liabilities - |
|
|
|
|
|
|
|
|
Receivables |
|
| (12,721 | ) |
|
| (6,365 | ) |
Inventory |
|
| (8,867 | ) |
|
| (1,186 | ) |
Prepaid expenses and other current assets |
|
| (29,195 | ) |
|
| 6,303 |
|
Accounts payable |
|
| 148,520 |
|
|
| 70,999 |
|
Unearned vendor rebate |
|
| 0 |
|
|
| (3,668 | ) |
Accrued expenses |
|
| (116,136 | ) |
|
| 681 |
|
Income taxes payable |
|
| 79,110 |
|
|
| 233,000 |
|
Net cash provided by operating activities |
|
| 931,332 |
|
|
| 1,388,964 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (85,821 | ) |
|
| (57,736 | ) |
Proceeds on notes due from related entity |
|
| 0 |
|
|
| 104,000 |
|
Net cash provided by (used in) investing activities |
|
| (85,821 | ) |
|
| 46,264 |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
| 3,107,100 |
|
|
| 77,500 |
|
Principal payments on long-term debt |
|
| (3,113,521 | ) |
|
| (377,566 | ) |
Payment of debt issuance costs |
|
| (49,699 | ) |
|
| 0 |
|
Payment of deferred offering costs |
|
| (31,823 | ) |
|
| 0 |
|
Net cash used in financing activities |
|
| (87,943 | ) |
|
| (300,066 | ) |
|
|
|
|
|
|
|
|
|
CHANGE IN CASH |
|
| 757,568 |
|
|
| 1,135,162 |
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD |
|
| 1,321,244 |
|
|
| 258,101 |
|
|
|
|
|
|
|
|
| |
CASH, END OF PERIOD |
| $ | 2,078,812 |
|
| $ | 1,393,263 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 127,800 |
|
| $ | 93,096 |
|
Transfer of property and equipment to assets held for sale |
| $ | 0 |
|
| $ | 189,640 |
|
Cash paid for Income taxes |
| $ | 88,006 |
|
| $ | 0 |
|
See Notes to 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 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
|
|
|
|
| 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 | ) |
|
|
|
|
| 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 | ) |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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 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.January 3, 2021. 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, 2020October 3, 2021, does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of December 29, 2019January 3, 2021, and the related notes thereto included in the Company’s Form 10-K for the fiscal year ended December 29, 2019.January 3, 2021.
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. Effective on July 30, 2018, the Company acquired 100% of the ownership BTND, LLC. in exchange for common stock in the Company through a Share Exchange Agreement (“Share Exchange”) with members of BTND, LLC (“BTND”), and its Members. Following the Share Exchange, BTND became a wholly owned subsidiary of the Company for reporting purposes under GAAP..
Business
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,2018 which is listed for sale, resulting insale. There were a total of ten operating restaurants at March 29, 2020. The Company owns a restaurant property in St. Louis, Missouri currently held for sale.on October 3, 2021.
The Company’s Dairy Queen store is operated pursuant to the terms of a franchise agreement with International Dairy Queen. The Company is required to pay regular royalty and advertising payments to the franchisor and to remain in compliance with the terms of the franchise agreement.
Fiscal Year Period
The Company’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 the 52-week year. All references to years in this report refer to the 13-week26-week periods in the respective fiscal year periods. Fiscal 20202021 is a 53-week52-week year ending January 3, 2021.2, 2022.
| 8 |
| Table of Contents |
Cash
For purposes of reporting cash and cash flows, cash is net of outstanding checks and includes, amounts on deposit at banks a money market mutual fund holding, and deposits in transit.
Receivables
Receivables consistsconsist mainly of rebates due from a primary vendor.
Inventory
Inventory consists of food, beverages and supplies and is stated at 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 range from three to thirty years.
The Company reviews long-lived assets to determine if the carrying value of these assets may not be recoverable based on estimated cash flows. Assets are reviewed 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 to future operating results of each restaurant over its remaining life. 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.
Assets Held for Sale
From time-to-time the Company may sell an existing operating unit or may close an operating unit and list the property for sale. AThe carrying value of property in the St. Louis area is currently listedwas fully reserved for sale. Also, in 2020. In September of 2018 the Company closed an operating Burger Time unit in Richmond, Indiana and the Richmond property is listed for sale. In the second quarter of fiscal 2019 it was concluded to record a charge of $93,488 for impairment of the value of the Richmond location.location and in the second quarter of 2020 an additional $100,000 impairment charge was recorded. The Company believes the Richmond property will be sold at or above its current carrying cost of assets held for sale.
Income Taxes
We accountprovide for income taxes under (Accounting Standards Codification (ASC), 740), Accounting for Income Taxes. ASC 740 using an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the liability method, whereby deferreddifferences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted, as necessary. The Company estimates a current tax provision for federal and state income taxes at the combined statutory rate of 27.5%
The Company currently 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, noany income tax provisionobligations. The Company currently has no federal or benefit was recognizedstate examinations in progress, nor has it had any federal or state tax examinations since its inception and 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.examination.
| 9 |
| Table of Contents |
Per Common Share Amounts
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.ASC. 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 computed 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 becauseincome if their effect would be anti-dilutive. There were no potentially dilutive shares outstanding as of the periods ending in 20202021 and 2019,2020, as the strike price for warrants outstanding was above the fair market price of the underlying stock in both periods.
Other Assets
Other assets principally isare the allocated fair value of the acquired Dairy Queen franchise agreement related to the Company’s 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 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at end of the respective fiscal years:at:
|
| 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 |
|
|
| October 3, 2021 |
|
| January 3, 2021 |
| ||
Land |
| $ | 485,239 |
|
| $ | 485,239 |
|
Equipment |
|
| 2,566,295 |
|
|
| 2,497,576 |
|
Buildings |
|
| 1,322,085 |
|
|
| 1,306,896 |
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
| 4,373,619 |
|
|
| 4,289,711 |
|
Accumulated depreciation |
|
| (2,568,830 | ) |
|
| (2,398,503 | ) |
Less - property held for sale |
|
| (258,751 | ) |
|
| (258,751 | ) |
Net property and equipment |
| $ | 1,546,038 |
|
| $ | 1,632,457 |
|
Depreciation expense for the 13-week39-week periods in 2021 and 2020 was $172,261 and 2019 was $44,395 and $58,810,$139,313, respectively.
NOTE 3 – 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 |
|
|
| October 3, 2021 |
|
| January 3, 2021 |
| ||
Accrued real estate taxes |
| $ | 103,129 |
|
| $ | 106,935 |
|
Accrued bonus compensation |
|
| 7,000 |
|
|
| 162,000 |
|
Accrued payroll |
|
| 93,217 |
|
|
| 56,139 |
|
Accrued payroll taxes |
|
| 9,699 |
|
|
| 8,519 |
|
Accrued sales taxes payable |
|
| 59,897 |
|
|
| 66,632 |
|
Accrued vacation pay |
|
| 17,663 |
|
|
| 19,657 |
|
Other accrued expenses |
|
| 13,993 |
|
|
| 852 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 304,598 |
|
| $ | 420,734 |
|
| Table of Contents |
NOTE 4 – LONG TERM DEBT
The Company had the following long termCompany’s 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.
|
| October 3, 2021 |
|
| January 3, 2021 |
| ||
|
|
|
|
|
|
| ||
Notes payable to bank with interest at 4.75%. Secured by eight of the Company's locations and the personal guaranty of a Company shareholder. These notes were paid in full on June 27, 2021. |
| $ | 0 |
|
| $ | 2,884,650 |
|
|
|
|
|
|
|
|
|
|
Three notes payable to bank dated June 28, 2021 due in monthly installments totaling $22,213 which includes principal and interest at 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 the Company's ten operating locations. The notes are guaranteed by BT Brands, Inc. and a shareholder of the Company. |
|
| 3,076,200 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
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. This note was paid in full on April 6, 2021. |
|
| 0 |
|
|
| 185,219 |
|
|
|
|
|
|
|
|
|
|
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. |
|
| 133,318 |
|
|
| 141,125 |
|
|
|
|
|
|
|
|
|
|
Minnesota Small Business Emergency Loan dated April 29, 2020 payable in monthly installments of $458.33 beginning December 15, 2020 which includes principal and interest at 0%. This note is secured by the personal guaranty of a shareholder of the Company. |
|
| 23,375 |
|
|
| 27,500 |
|
|
|
| 3,232,893 |
|
|
| 3,238,494 |
|
Less - unamortized debt issuance costs |
|
| (48,349 | ) |
|
| (54,205 | ) |
Current maturities |
|
| (178,611 | ) |
|
| (245,306 | ) |
Total |
| $ | 3,005,933 |
|
| $ | 2,938,983 |
|
| Table of Contents |
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 Ice
In 2019, the Company made a series ofcash advances in the form of investments into Next Gen Ice, Inc. (NGI) in the form of Series C Notes totaling $179,000. In the first quartera principal amount 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.$179,000 (“Notes”). The Company’s CEO, Gary Copperud, is Chairman of the Board of Directors of NGI and the Company’s Chief Operating Officer, Kenneth Brimmer, is also a member of the Board of Directors of NGI and is currently servingserves as Chief Financial Officer of NGI on a part-time contract basis. Mr. Copperud, and a limited liability companiescompany controlled by him together own approximately 55%34% of the outstanding equity of NGI. The Series COn March 2, 2020, the Notes, were originally due on March 3, 2020. On March 3, 2020, the Companymodified and NGI entered into a Loan Modification and Extension Agreement pursuant to which the Company agreed to extend the maturity date of the NGI Notesextended to August 31, 2020. In considerationAs part of the extension of the term of the NGI Notes: (i) NGI granted toNote modification, the Company a security interest in all of NGI’s assets, (ii) issued to the Company a warrant entitling it to purchasereceived 179,000 shares of common stock in Next Gen Ice from the founders of NGI representing 2% of NGI shares outstanding. The Company also holds warrants to purchase 358,000 shares of common stock at a price of $1.00 per share at any time through March 31, 2023,2023. The common stock and (iii)common stock purchase warrants received by the foundersCompany were recorded at a value determined by the Company of $75,000. This amount was also recorded at a discount to the note receivable and was recognized as interest income over the extended term of the Notes. The Company has determined that its investment in NGI including Mr. Copperud agreed to transferdoes not have a readily determinable market value and therefore is carried at the cost determined by the Company at the time the shares and warrants were received. The Notes were repaid in August 2020, with interest, and currently there are no outstanding amounts due to the Company 179,000 common shares offrom NGI.
NOTE 6 – CONTINGENCIES
In the course ofDuring 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 aware of any significant asserted or potential claims which could impact its financial positionposition.
NOTE 7 – Covid-19 AND EMERGENCY LOAN RELIEFSUBSEQUENT EVENT
On March 11, 2020,Effective November 12, 2021, the World Health Organization declared the novel strainCompany entered into an Underwriting Agreement with Maxim Group LLC. and Joseph Gunnar & Company, LLC as representatives 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 continuedan Underwriting Group to operate allpurchase 2,400,000 units, each unit consisting 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 Queenone share of Common Stock and one other location. At this time, it is impossiblefive-year stock purchase warrant to predictpurchase an additional share at $5.50 per share. Under the ultimate impactUnderwriting Agreement, the gross proceeds to the Company are approximately $4.55 per share after deducting underwriting discounts and expenses. The Company also granted to the Underwriters an “overallotment option” wherein the Underwriters were granted the option to purchase an additional 300,000 units for 30 days following the offering. We estimate that the net proceeds from the sale of the Covid-19 pandemic on the Company’s operating resultsunits, after deducting underwriting discounts and financial condition as the situationcommissions 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 amendedestimated offering expenses incurred 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 Loansus, will be deferred for a period of six months. Under certain circumstances, all or a portion ofapproximately $10,665,000. If the PPP Loans may be forgiven, however, there can be no assurance that any portion ofunderwriters fully exercise the PPP Loansover-allotment option, the net proceeds 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.approximately $12,321,000.
| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of 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 3, 2021.
Overview
We own and operate ten fast food restaurants, including nine Burger Time restaurants and one Dairy Queen restaurant, all of which are in the North Central region of the United States. Our Burger Time restaurants feature a wide variety of burgers and other affordably priced 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 Time operating principles include: (i) offering bigger burgers and more valuea “Bigger Burger” to deliver our customers “more good food for the money;your 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; and (iv) great tasting 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.
Operationally, we take several steps to maintain efficiency, including maintaining inventory of $5,000 to $15,000 per store at any given time (which also has the advantage of allowing for frequent deliveries of fresh food)..
Our average customer transaction increased by 4% in the first nine months of fiscal 2021 compared to 2020 and currently is approximately $11.90. This recent increase is principally because of a menu price increase implemented in the middle of 2020. Our sales trends are influenced by many factors, including the COVID pandemic, which had been a positive for our sales, however, the environment is challenging for smaller restaurant chains as competition from the major fast-food hamburger-focused business is intense.
BusinessMaterial Trends - Effects of COVID-19and Uncertainties
In March 2020,There are industry trends which may have an impact on our business. These trends principally relate to the World Health Organization declaredrapidly changing area of technology and food delivery. The major companies in the novel strain of coronavirus (“COVID-19”)restaurant industry have rapidly adopted and developed applications for the smart phone and mobile delivery, have aggressively expanded drive-through operations and have developed loyalty programs and data base marketing supported by a global pandemic. This contagious virus, which has continuedrobust technology platform. We expect these trends to spread, has adversely affected workforces, customers, economies and financial markets globally. It has also disruptedcontinue as restaurants aggressively complete for customers. Further, 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, wemajor industry participants have continued to operate all of our locations on a drive-through basis only eliminating access to the walk-up service window and any indoor seating which is only available at our Dairy Queen location and one other location. Also, most of our locations have outdoor picnic table seating for use in nicer summer weather, and in, most cases, these dining areas have been closed. At this time, it is impossible to predict 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 and regulations surrounding government response to the pandemic are constantly changing. As a result of the many uncertainties potentially threatening our ability to continuestrategically discount prices through promotions such as a going concern.“dollar menu.” We expect these significant trends will continue.
The Coronavirus Aid, Relief,cost of food has increased over the last two years, and Economic Security Act (the “CARES Act”) was signed into law on March 27,we expect to see continued inflationary pressure in the remainder of 2021. Beef costs were stable in 2020 providing provisions aid small businesses through programs administeredand recently have increased by approximately 13.7% per pound following an increase of approximately 5% in 2019. Given 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 impactcompetitive nature of the provisionsfast-food burger restaurant industry, in response to recent commodity price increases, we are planning to implement a price increase in the fourth quarter of 2021, however, it may be difficult to raise menu prices to fully cover future cost increases. During 2020 and continuing into 2021, a significant increase in business volume contributed to improved profit margins. Additional margin improvements may have to be achieved through operational improvements, equipment advances and increased volumes to help offset any food cost increases due to the competitive state of the CARES Act. restaurant industry.
The CARES Actgeneral state of the economy influences restaurant customer traffic, our ability to staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. Further, such conditions could impact the availability of the menu items we offer and the ability of suppliers to deliver such products. We 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 loan may be forgivenadversely affected if jurisdictions in which we have restaurants sre ordered to close, or we may be forced to implement temporary voluntary closures or impose restrictions on operations as a result of a shortage in available workers. Even if such measures are not implemented, the funds are used for payroll and other qualified expenses. Given the absenceperceived risk 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.infection or significant health risk may adversely affect our business.
| Table of Contents |
Growth Strategy and Outlook
We are seeking to increase value for our shareholders in the foodservice industry. We expectOur principal strategy is to pursue the acquisition ofacquire multi-unit restaurant concepts and individual restaurant properties at attractive multiples of earnings. Once acquired,Though 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 expectdo not currently plan to pursue growth strategies to both expand the number of locations and to increase comparable store sales and profits.
Our business plan is to grow through acquisitions in the foodservice industry. In addition,do so, under certain circumstances, we may develop additional Burger Time locations through the acquisition and conversion of existing properties. We also expect to identify and complete acquisitionsOther key elements of existing restaurant units and multi-unit chains which could be operated and expanded through the addition of new locations. Ourour growth strategy is predicated upon (i) building or acquiring new restaurants, (ii) growing comparable restaurantencompass increasing same store sales and profits, and (iii) quickly and cost-effectively scaling our growth while leveraging our corporate services.boosting brand awareness.
Expansion Through Acquisitions
We intend to make strategic and opportunistic acquisitions that provide an entrance into targeted restaurant segments and geographic areas. Restaurant businesses become available for acquisition frequently and we believe that we will have opportunitiesmay be able to purchase either individual restaurant properties or multi-unit businesses at prices providing an attractive return on our investment. Alternatively, we may acquire new restaurant businesses.operating assets where a franchise program of the acquired foodservice business is concluded by management to be the most appropriate growth plan. We intend to follow a disciplined strategy of evaluating acquisition opportunities that seek to determineensure and enable the accretive and efficient acquisition and integration of additional restaurant concepts. Successful execution of our acquisition strategy will allow us to diversify our operations both into other dining concepts and geographic locations.
In evaluating potential acquisitions, we may consider the following characteristics, among others that management considers relevant to each distinct opportunity:
· | the value proposition offered by acquisition targets when comparing the purchase price to the potential return on our investment; | |
· | established, recognized brands within their geographic footprint; | |
· | steady cash flow; | |
· | track records of long-term operating performance; | |
· | sustainable operating results; | |
· | geographic diversification; and | |
· | growth potential. |
Assuming we are successful in markets meeting our demographic, real estate and investment criteria. Our abilityacquiring new businesses, we will operate the business or businesses with a shared central management organization. Following the acquisition, we expect to successfully evaluate an acquisition opportunity andpursue a growth plan 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 marketslocations and to increase comparable store sales and profits, as described below. We anticipate that by leveraging our management services platform, we will be able to achieve post-acquisition cost benefits by reducing the corporate overhead of the acquired business. If we acquire one or more restaurant chains or individual units in close proximity to each other, we believe the concentration of operations will provide economic synergies with respect to management functions, marketing and advertising, supply chain assistance, staff training and operational oversight.
Future Development of Additional Burger Time Restaurants
We may consider developing additional Burger Time location. Conditions which might give rise to developing additional Burger Time locations include the opportunity to acquire and convert a property that previously had operated as a fast-food establishment at a highly attractive price in a location that fits naturally within Burger Time’s geographic footprint so that we believemay share service expenses, including advertising costs.
If we elect to open additional Burger Time restaurants, we expect that development of these restaurants will, based on our experience, require a minimum six to nine months after opening to achieve the targeted restaurant-level sales and operating margins. In a case where we open a restaurant in new and untested markets, achieving targeted sales may take longer since the local population will not be attractive to expand into. Even if we can acquire restaurants, thefamiliar with our brand and building brand awareness takes time in a new an untested market. How quickly new restaurants achieve their targeted sales and operating margin depends on many factors, including the level of consumer familiarity with our Company,brand, as well as the availability of experienced managers and other staff. However, every restaurant has a unique opening sales pattern, and this pattern is difficult to predict.
| 14 |
| Table of Contents |
Increase Same-Store Sales
Same-store sales growth reflects the change in year-over-year sales for the comparable store base. We intend to deploy a multi-faceted same-store sales growth strategy to optimize restaurant performance. We will be subjectapply techniques proven in the restaurant industry to various risks, some of which, including factors impactingincrease same store sales at our customers, suchBurger Time restaurants and at our acquired properties and to develop new approaches that reflect our corporate character and restaurant composition. We expect to utilize customer feedback and analyze sales data to introduce, test and hone existing and new menu items. In addition, we will investigate utilizing public relations and experiential marketing to engage customers. We expect that our strategies to increase same-store sales will evolve as declining economic conditions, are entirely outwe acquire new restaurant concepts in new markets.
Increase Brand Awareness
We appreciate that increasing brand awareness is important to the growth of our control.Company. We will develop and implement forward-looking branding strategies both for our Burger Time concept and for any businesses that we acquire. We will seek to quicklyleverage social media and cost-effectively scaleemploy targeted digital advertising to expand the reach of our growth by leveragingbrands and drive traffic to our generalstores. In addition, we intend to develop mobile applications that will allow consumers to find restaurants, order online and administrative costs.earn rewards. We will deploy internet advertising to match specific menu items targeted to specific demographic groups. We will deploy cross-over ads with radio and social media interacting with each other. We expect that our branding initiatives will evolve as we consummate acquisitions of restaurant concepts that appeal to distinct consumer markets in differing geographic areas.
Our ability to acquire or open new restaurants is predicated on the availability of capital for such purposes. We cannot be certain that capital will be available to us on acceptable terms if at all.
| 15 |
| Table of Contents |
Results of Operations for the Thirteen Weeks Ended October 3, 2021, and the Thirteen Weeks Ended September 27, 2020
The following table sets forth, for the fiscal periods indicated, our Condensed Statements of Operations expressed as percentage of total revenues. Percentages below 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, |
| |||||
|
| October 3, 2021 |
|
| September 27, 2020 |
| ||
|
|
|
|
|
|
| ||
SALES |
|
| 100.0 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 41.4 |
|
|
| 36.4 |
|
Labor costs |
|
| 26.6 |
|
|
| 26.3 |
|
Occupancy cost |
|
| 5.8 |
|
|
| 7.2 |
|
Other operating expenses |
|
| 4.5 |
|
|
| 5.1 |
|
Depreciation and amortization |
|
| 2.6 |
|
|
| 2.1 |
|
General and administrative |
|
| 3.3 |
|
|
| 7.9 |
|
Total costs and expenses |
|
| 84.2 |
|
|
| 85.0 |
|
Income from operations |
|
| 15.8 |
|
|
| 15.0 |
|
INTEREST EXPENSE |
|
| (1.4 | ) |
|
| (1.9 | ) |
INTEREST INCOME |
|
| - |
|
|
| 1.2 |
|
INCOME TAXES |
|
| (3.9 | ) |
|
| (3.6 | ) |
NET INCOME |
|
| 10.5 | % |
|
| 10.7 | % |
Net Revenues:
Net sales for Fiscal 2020fiscal third quarter of 2021 decreased $74,403 or 5.4%$93,455 to $1,303,430$2,280,999 from $1,377,833$2,374,454 in Fiscal 2019. The decreasefiscal 2020. Sales in sales was principally2021 have continued to be strong relative to the result2019 the pre-pandemic level. We have maintained the majority of the West St. Paul location being closed for approximately seven weeksgains realized during the period of significant dining restrictions at the height of the pandemic which contributed to a continuing favorable impact on drive-through locations. This trend has led to an increase in consumers choosing Burger Time as a result of a fire in the location, and the effects of weather conditions during the period.meal alternative.
Restaurant gross unit sales at the Company’s nine Burger Time locations for the 13-week period ranged from a low of $99,384 (excluding West St. Paul)approximately $147,000 to a high of $185,500approximately $298,000 and average sales for each Burger Time unit during the period was approximately $146,000$227,000 in 2020 declining2021 a decline of approximately $10,000 from $154,000the same period in 2019.2020.
Costs of Sales - food and paper:
Cost of sales - food and paper for Fiscal 2020third quarter of fiscal 2021 increased as a percentage of sales slightly to $540,100 (41.4%41.4% of restaurant sales)sales from $560,271 (40.7%36.4% of restaurant sales)sales in Fiscal 2019.the third quarter of fiscal 2020. This increase was mainly due to an increase in averagethe net result of inflationary pressures of certain items, a favorable six-month verbal fixed price arrangement on the price of ground beef prices of approximately 18% to an average ofpatties at $2.51 per pound which, more recently, has increased to $2.95 per pound, increases in 2020.cost have been mitigated by the impact of a price increase taken at the end of second quarter in 2020 fully realized in 2021 we are planning to implement a menu price increase in the fourth quarter of 2021 to, in part, offset increasing costs.
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| Table of Contents |
Restaurant Operating Costs:
Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, impairment charges and depreciation and amortization) as a percent of restaurant sales increased slightlydecreased to 97.6%36.9% of sales in 2020the third fiscal quarter of 2021 from 95.8%38.6% in Fiscal 2019.similar period of fiscal 2020. This was due primarily to the net effect of improved utilization of store labor, offset by by higher cost incurred for personal protection equipment, a tighter labor markets and the matters discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.below all of which were offset by the midyear 2020 price increase.
Labor CostsCosts:
For Fiscal 2020,the third quarter of fiscal 2021, labor and benefits costs decreasedincreased slightly by $2,936as a percentage of sales to $483,309 (increasing to 37.1%26.6% of restaurant sales)sales from $486,245 (35.3% 26.3%of restaurant sales)sales in Fiscal 2019.fiscal 2020. The increase in the percentage was the result minimum staffing level required as sales declined. The Company continuedof tighter labor markets leading to benefit from virtually no turnover in its unit restaurant management which tends to cause unfavorable variations in labor costs.higher hourly wage costs offset by the leveraging of existing staffing. Payroll costs are semi-variable in nature, meaning that they do not decrease proportionally to decreases in revenue, thus they increase as a percentage of restaurant sales when there is a decrease in restaurant sales.
Occupancy and Other Operating Expenses
For Fiscal 2020,the third fiscal quarter of 2021, occupancy and other expenses decreased $23,453slightly to 19.1%$235,485 (10.3% of sales or $248,762sales) from $272,215 (19.8%$291,936 (12.3% of restaurant sales) in Fiscal 2019.2020. The decrease is the result of a reduction in one time maintenance charges incurred in 2020.
Depreciation and Amortization Expense:
For Fiscal 2020,third fiscal quarter of 2021, depreciation and amortization decreased 24.5% or $14,415increased $10,737 to $46,115 (3.5%$60,405 (2.6% of sales) from $60,512 (4.4%$49,668 (2.1% of sales) in Fiscal 2019.the third quarter of fiscal 2020.
General and Administrative Costs
General and administrative costs decreased 51.8% or $61,568$113,887 from $127,784 (9.3%$188,292 (7.9% of sales) to $74,415 (3.3% of sales) in Fiscal 2019 to $66,216 (5.1%the third fiscal quarter of sales)2021. The decline is, in Fiscal 2020. The increasepart, the result of a decrease in general and administrative costs is primarily attributable to a reduction in officer salary of approximately $37,500corporate staff during the period and2021 period. The Company expects to fill a vacant position during the elimination of a general manager position.fourth quarter.
Income (loss) from Operations
The lossincome from operations for the 13-week period was $358,743 in fiscal 2021 compared to an income from operations of $355,865 in the similar period in 2020. The increase in the percentage of income from operations to 15.8% in fiscal 2021 from 15.0% in fiscal 2020 was the result of higher input costs resulting from inflationary pressures in the marketplace offset by a significant decline in General and Administrative costs.
Restaurant-level EBITDA:
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles, (GAAP), the Company uses restaurant-level EBITDA, 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. 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-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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| Table of Contents |
We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization and impairment charges. General and administrative costs are excluded as they are generally not specifically identifiable to restaurant specific costs. Depreciation and amortization and impairment charges are excluded because they are not ongoing controllable cash expenses, and they are not related to the health of ongoing operations.
|
| 13-Week Period |
| |||||
|
| October 3, 2021 |
|
| September 27, 2020 |
| ||
Revenues |
| $ | 2,280,999 |
|
| $ | 2,374,454 |
|
Reconciliation: |
|
|
|
|
|
|
|
|
Income from operations |
|
| 358,743 |
|
|
| 355,865 |
|
Depreciation and amortization |
|
| 60,405 |
|
|
| 49,668 |
|
General and administrative, corporate level expenses |
|
| 74,415 |
|
|
| 188,292 |
|
Restaurant-level EBITDA |
|
| 493,563 |
|
|
| 593,825 |
|
Restaurant-level EBITDA margin |
|
| 21.6 | % |
|
| 25.0 | % |
Results of Operations for the Thirty-Nine Weeks Ended October 3, 2021, and the Thirty-Nine Weeks Ended September 27, 2020
The following table sets forth, for the fiscal periods indicated, our Condensed Statements of Operations expressed as percentage of total revenues. Percentages below may not reconcile because of rounding.
|
| 39 Weeks Ended, |
| |||||
|
| October 3, |
|
| September 27, 2020 |
| ||
|
|
|
|
|
|
| ||
SALES |
|
| 100.0 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 39.1 |
|
|
| 37.9 |
|
Labor costs |
|
| 27.2 |
|
|
| 28.3 |
|
Occupancy costs |
|
| 6.6 |
|
|
| 8.3 |
|
Other operating expenses |
|
| 5.4 |
|
|
| 5.2 |
|
Depreciation and amortization |
|
| 2.6 |
|
|
| 2.3 |
|
Impairment of assets held for sale |
|
| - |
|
|
| 1.6 |
|
General and administrative |
|
| 4.5 |
|
|
| 6.1 |
|
Total costs and expenses |
|
| 85.3 |
|
|
| 89.7 |
|
Income from operations |
|
| 14.7 |
|
|
| 10.3 |
|
INTEREST EXPENSE |
|
| (2.4 | ) |
|
| (2.2 | ) |
INTEREST INCOME |
|
| - |
|
|
| 1.5 |
|
OTHER INCOME (PAYROLL PROTECTION GRANT) |
|
| - |
|
|
| 7.7 |
|
INCOME TAXES |
|
| (3.4 | ) |
|
| (3.9 | ) |
NET INCOME |
|
| 8.8 | % |
|
| 13.4 | % |
Net Revenues:
Net sales for the 39-week period representing the first three quarters of fiscal 2021 increased $530,332 or 8.7% to $6,604,554 from $6,074,222 in fiscal 2020. The increase in sales was principally the result of moderating but still favorable impact in the first half of the 39-week period of the consumer response to the pandemic resulting in consumers choosing Burger Time as a meal alternative combined with generally favorable weather conditions during the period.
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| Table of Contents |
Gross restaurant sales for the 39-week period for our nine Burger Time locations ranged from a low of approximately $418,000 to high of approximately $886,000 and average sales for each Burger Time unit during the period was approximately $617,000 in 2021 an increase from approximately $556,000 in same 39-week period in 2020.
Costs of Sales - food and paper:
Cost of sales - food and paper for the 39-week period representing the first three quarters of fiscal 2021 increased as a percentage of sales to 39.1% from 37.9% of restaurant sales in the similar period in 2020. This increase was mainly due to inflationary pressures in the general economy increasing product cost . Average beef prices paid by the Company were approximately of $2.51 per pound in 2021 which was unchanged from 2020. Although, near the end of the period beef prices increased 13.7% per pound which we expect will impact fourth quarter results to some degree.
Restaurant Operating Costs:
Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, impairment charge, depreciation, and amortization) as a percent of restaurant sales declined to 39.2% of sales in the 2021 period from 41.8% in the fiscal 2020 period. This was due primarily to the increase in sales activity and its impact as further discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.
Labor Costs
For the 39-week period representing the first three quarters of fiscal 2021, labor and benefits costs decreased to 27.2% of restaurant sales from 28.3% of restaurant sales in the fiscal 2020 period. The Company was able to favorably leverage staffing levels against the significant increase in volume during the second half of the period. While the hiring markets have become more challenging in terms of filling open positions, the Company continued to benefit from limited turnover in its unit restaurant management which tends to cause unfavorable variations in labor costs. Payroll costs are semi-variable in nature, meaning that they do not decrease proportionally to decreases in revenue, thus they may increase as a percentage of restaurant sales when there is a decrease in restaurant sales conversely in tight labor markets occasionally the labor percentage cost decreases significantly as managers help fill spot shortages in staff.
Occupancy and Other Operating Expenses
For the first 39 weeks of fiscal 2021, occupancy and other expenses increased $28,225 to $791,220 (12.0% of sales) from $817,243 (13.5% of restaurant sales) in the similar period in 2020. Many of these costs are fixed and the lower percentage reflect the increase in restaurant sales, this was offset by an increased focus on maintenance projects resulting from high volume at our stores impacting our major systems such as HVAC and refrigeration.
Depreciation and Amortization Expense:
Depreciation and amortization expense in the first three quarters of fiscal 2021 increased by $33,211 to $173,799 (2.6% of sales) from $140,588 (2.3% of sales) in the fiscal 2020 period and is the result of capital additions at several of our locations.
General and Administrative Costs
General and administrative costs decreased 25.7%, or $76,058, from $371,455 (6.1% of sales) in the first three quarters of fiscal 2020 to $295,397 (4.5% of sales) for the fiscal 2021 period. In part from the result of lower management headcount
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| Table of Contents |
Income from Operations
Income from operations was $79,777$969,415 in Fiscal 2020the 39-week period of fiscal 2021 compared to a loss from operations of $129,177$626,244 in Fiscal 2019.the fiscal 2020 period. The change in income from operations in Fiscal 2020the fiscal 2021 period compared to Fiscal 20120fiscal 2020 was due primarily to the matters reduction in General and Administrative Expenseimpact of the 2020 impairment charge, continued robust sales activity and the matters discussed in 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 uses restaurant-level EBITDA, 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. 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-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.
We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization and impairment charges. General and administrative costs are excluded as they are generally not specifically identifiable to restaurant specific costs. Depreciation and amortization and impairment charges are excluded because they are not ongoing controllable cash expenses, and they are not related to the health of ongoing operations.
|
| 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 | % |
|
| 39-Week Period |
| |||||
|
| October 3, 2021 |
|
| September 27, 2020 |
| ||
Revenues |
| $ | 6,604,554 |
|
| $ | 6,074,222 |
|
Reconciliation: |
|
|
|
|
|
|
|
|
Income from operations |
|
| 969,415 |
|
|
| 626,244 |
|
Depreciation and amortization |
|
| 173,799 |
|
|
| 140,588 |
|
General and administrative, corporate level expenses |
|
| 295,397 |
|
|
| 371,455 |
|
Restaurant-level EBITDA |
|
| 1,438,611 |
|
|
| 1,138,287 |
|
Restaurant-level EBITDA margin |
|
| 21.8 | % |
|
| 18.7 | % |
Liquidity and Capital Resources
The condensed consolidated financial statements have been prepared onSince March of 2020, the Covid-19 pandemic has had a going concern basis.positive impact of the Company’s sales and liquidity. For the period ending March 29,2020,39 weeks ended October 3, 2021, the Company incurred a net lossearned an after-tax profit of $116,244. Cash flow provided by operating activities increased to $81,438 in 2020 from a negative $25,640 in fiscal 2019 principally as a result of increases in vendor accounts payable.$583,268. On March 29, 2020,October 3, 2021, the Company had $310,134$2,078,812 in cash and working capital deficit of $535,201$1,1760,68 an increase of $65,875$765,794 from January 3, 2021. The increase is partially the year-end deficitresult of $468,326.Company completing a refinancing of the mortgages covering all its Burger Time properties including approximately $185,000 of current maturities of long-term debt which was included in the long-term refinancing. In the 39-week period ending October 3, 2021, the Company continued to benefit from excellent results and positive operating cash flow even as government restrictions on inside dining were eased.
The coronavirus (“Covid-19”) global pandemic is significantly harmingCovid-19, and its variants, the various variants, likely will to continue to have a significant impact on the United States economy. Many businesses have closed, and many citizens are subject to “shelter at home” governmental orders. At this time, all of our units continue to operate, however, itIt is impossibledifficult to predict either the near-term effects or the ultimate impact of the Covid-19COVID-19 pandemic or the impact of governmental responses on the United States economy in general, and specifically the impact on the quick service drive-through segment of the food service industry and on 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 next three months. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27,
In May 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 grantedreceived pandemic-related loans totaling $487,900. Included in that amount was $460,400 borrowed under the Small Business Administration PayrollAdministration’s Paycheck Protection Program.Program (“PPP”). Under the terms of the program, the loans were forgiven in 2021. The SBA’s forgiveness of the PPP is accounted for as a “grant” and $466,400 was reflected as “Other Income” in the second quarter of 2020. Also, in May 2020, the Company expects to use these funds to meet payroll expenses. The Company’s BTNDDQ, L.L.C. subsidiary also received aborrowed $27,500 no-interest loan from a State ofat no interest under the Minnesota Small Business Emergency Loan Program which under certain circumstance, may become a grant.
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| Table of Contents |
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 or complimentary to our business. Our operations do not require significant working capital, and, like many restaurant companies, we able operate with negative working capital. We anticipate that working capital deficits may be incurred in the future. Our primary sources of liquidity and cash flows are operating cash flows and cash on hand. We use this to service debt and to maintain our stores to operate in an efficient manner, and to increase our working capital. Our working capital position benefits from the fact that we collect cash from sales from our customers at the point of sale, or within a few days from our credit card processor, and in general, payments to our vendors are not due for thirty days.
Summary of Cash Flows
Cash Flows Provided by Operating Activities
Operating cash flow in 2020 included $466,758 of Paycheck Protection loan program.forgiveness “other income” in operating cash flow which did not reoccur in 2021 contributing to a decline in cash flow from operations in the first six months of 2021 compared to 2020. As a result continued strong sales over the prior year, we generated $931,322 in pre-tax cash flow from operations in the 39-week period ending October 3, 2021. The winter months have historically been seasonally the slowest part of the Company’s business generating a lower level of cash flow in comparison to the balance of the year.
Cash Flows Used in Investing Activities
In 2020 through the third quarter of 2021 the Company expectshas focused on its primary business and building its working capital reserves.
Cash Flows Used in Financing Activities
A significant portion of the Company’s cash flow is allocated to have sufficient cash assetsservice the Company’s debt.
Contractual Obligations
As of October 3, 2021, we had approximately $3,210,000 in contractual obligations relating principally to meetamounts due under mortgages on the real property on which are stores are situated. Our monthly required payment is approximately $24,000. At the end the second quarter of fiscal 2021, the Company refinanced most of its obligationsoutstanding mortgage debt with a new lender lowering its nominal interest cost from 4.75% to 3.45% fixed 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.
ten years.
Qualitative and Quantitative Disclosure about Market Risk
Commodity Price Risk
We are subject to volatility in food costs as a result of market risk associated with commodity prices. Our ability 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 based on beef commodity prices. We do not currently manage this risk with commodity future and option contracts. AAssuming there was no corresponding menu price increase, a ten percent increase in the cost of beef would result in approximately $98,000$150,000 of additional food costs for the Company annually.
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| Table of Contents |
Seasonality and Inflation
Seasonal factors and the timing 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 fiscalrecent years. Increases in food, labor or other operating costs could adversely affect the Company’s operations. In 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 cost 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.
Off-Balance Sheet Arrangements
We did not have during
During the periods presented, and currently, 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 Pronouncements
There has been no impact to our financial statements and our results of operations and financial condition as the result 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.
Critical Accounting Policies and Estimates
Our discussion and analysis of operating results and financial condition are based upon our condensed consolidated financial statements. The preparation of our condensed consolidated 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.
All of our significant accounting policies are disclosed in our Form 10-K for the fiscal year ended January 3, 2021.
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.
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| Table of Contents |
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.
ITEM 4. CONTROLS AND PROCEDURES.PROCEDURES
Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
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 Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Table of Contents |
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
SinceDuring the date on which the Company filed its annual report on Form 10-K and through the date of this quarterly report,quarter ended October 3, 2021, the Company did not sell any securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
NoneEffective November 12, 2021, the Company entered into an Underwriting Agreement with Maxim Group LLC and Joseph Gunnar & Company, LLC to purchase 2,400,000 units, each unit consisting of one share of common stock and one five-year warrant to purchase a share of common stock at an exercise price of $5.50 per share. Pursuant to the Underwriting Agreement, the gross proceeds to the Company will be approximately $4.55 per share after deducting underwriting discounts and expenses. The Company also granted to the underwriters an option to purchase an additional 360,000 units for 30 days following the closing of the offering. We estimate that the net proceeds from the sale of the units, after deducting underwriting discounts and commissions and estimated offering expenses incurred by us, will be approximately $10,665,000. If the underwriters fully exercise the over-allotment option, the net proceeds will be approximately $12,321,000. We expect the offering to close on November 16, 2021.
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ITEM 6. EXHIBITS.EXHIBITS
Exhibit | Description | |
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101.INS |
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| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
Document. | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation | |
Linkbase Document. | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
Document. | ||
101.LAB | Inline XBRL Taxonomy Extension | |
Document. | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* | In accordance with Item 601 of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933. |
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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. |
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Date: | By: | /s/ |
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| Name: |
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| Title: | Chief and Principal Financial Officer |
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Name:
Kenneth Brimmer
Title:
Chief Operating Officer
and Principal Financial Officer
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