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
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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: 333-233233
BT BRANDS, INC. |
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Wyoming |
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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, | 58078 | |
(Address of principal executive offices) |
| (Zip Code) |
(307) |
( |
NONE |
(Former name former address and former fiscal year if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, $0.002 per share |
| BTBD |
| The NASDAQ Stock Market LLC |
Warrant to Purchase Common Stock |
| BTBDW |
| The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for a 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 a 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“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. ☐
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated Filer | ☒ | Smaller reporting company | ☒ |
|
| Emerging | ☒ |
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 16,August 10, 2022, there were 6,461,118 shares of common stock outstanding.
CAUTIONARY 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, “BT Brands” or the "Company"“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"“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-lookingForward-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 believeswe believe the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove accurate. Certain factors may cause results to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. You should evaluate alldiffer materially from those anticipated by the forward-looking statements made in this reportquarterly report. Such factors may include, without limitation, the risks, uncertainties, and regulatory developments (1) related to public health, which include risks and uncertainties related to COVID in its various forms, the impact of governmental regulations that have been and may in the context offuture be, imposed in response to the factors thatpandemic which potentially could cause outcomes to differ materially from our expectations. These factors include, but are not limited to:
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We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we update one or more forward-looking statements, no inference should be made that we will make additional updates regardinghave an impact on discretionary consumer spending and (2) those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
From time to time, oral or written forward-looking statements are also includeddiscussed and described in our reports on Forms 10-K, 10-Q, and 8-K, our Schedule 14A, our press releases and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable, any or all of the forward-looking statements may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report2021 annual report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports10-K filed with the Securities and Exchange Commission.Commission (the “SEC”) on March 17, 2022. Many of these risks and uncertainties are beyond our ability to control or predict; in many cases, the risks and uncertainties 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. We expressly disclaim any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in our expectations or any change in events, conditions, or circumstances on which any such statement is based, except as required by law.
2 |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION | 16 | ||
25 | |||
26 | |||
27 | |||
27 | |||
27 | |||
27 | |||
27 | |||
27 | |||
28 | |||
29 |
3 |
Table of Contents |
TABLE OF CONTENTS
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BT BRANDS, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
| ||||||||
|
| July 3, 2022 |
|
|
| |||
|
| (Unaudited) |
|
| January 2, 2022 |
| ||
ASSETS |
|
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|
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|
| ||
CURRENT ASSETS |
|
|
|
|
|
| ||
Cash |
| $ | 8,295,952 |
|
| $ | 12,385,632 |
|
Marketable securities |
|
| 527,750 |
|
|
| 0 |
|
Receivables |
|
| 36,068 |
|
|
| 72,251 |
|
Inventory |
|
| 146,892 |
|
|
| 79,510 |
|
Prepaid expenses and other current assets |
|
| 53,460 |
|
|
| 27,186 |
|
|
|
|
|
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Total current assets |
|
| 9,060,122 |
|
|
| 12,564,579 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET |
|
| 2,977,153 |
|
|
| 1,592,338 |
|
OPERATING LEASES RIGHT-OF-USE ASSETS |
|
| 1,146,167 |
|
|
| 0 |
|
INVESTMENTS |
|
| 1,549,828 |
|
|
| 75,000 |
|
GOODWILL |
|
| 488,431 |
|
|
| 0 |
|
INTANGIBLE ASSETS |
|
| 425,000 |
|
|
| 0 |
|
OTHER ASSETS, net |
|
| 285,285 |
|
|
| 273,810 |
|
|
|
|
|
|
|
|
|
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Total assets |
| $ | 15,931,986 |
|
| $ | 14,505,727 |
|
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|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
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CURRENT LIABILITIES |
|
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Accounts payable |
| $ | 498,257 |
|
| $ | 291,973 |
|
Current maturities of long-term debt |
|
| 171,358 |
|
|
| 169,908 |
|
Current operating lease obligations |
|
| 134,188 |
|
|
| 0 |
|
Accrued expenses |
|
| 575,790 |
|
|
| 254,341 |
|
Income taxes payable |
|
| 8,000 |
|
|
| 209,088 |
|
|
|
|
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Total current liabilities |
|
| 1,387,593 |
|
|
| 925,310 |
|
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LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 2,750,279 |
|
|
| 2,833,064 |
|
NONCURRENT LEASE OBLIGATIONS |
|
| 1,015,610 |
|
|
| 0 |
|
DEFERRED INCOME TAXES |
|
| 51,510 |
|
|
| 119,000 |
|
Total liabilities |
|
| 5,204,992 |
|
|
| 3,877,374 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' EQUITY |
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Preferred stock, $0.001 par value, 2,000,000 shares authorized, no shares outstanding at July 3, 2022 and January 2, 2022 |
|
| 0 |
|
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| 0 |
|
Common stock, $0.002 par value, 50,000,000 authorized, 6,461,118 and 6,447,506 shares issued and outstanding at July 3, 2022 and January 2, 2022, respectively |
|
| 12,922 |
|
|
| 12,895 |
|
Additional paid-in capital |
|
| 11,363,935 |
|
|
| 11,215,696 |
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Accumulated deficit |
|
| (649,863 | ) |
|
| (600,238 | ) |
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Total shareholders' equity |
|
| 10,726,994 |
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| 10,628,353 |
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Total liabilities and shareholders' equity |
| $ | 15,931,986 |
|
| $ | 14,505,727 |
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|
See Notes to Condensed Consolidated Financial Statements |
4 |
Table of Contents |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| April 3, 2022 |
|
| January 2, 2022 |
| ||
|
| (Unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
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| ||
Cash |
| $ | 11,073,645 |
|
| $ | 12,385,632 |
|
Maketable securities |
|
| 254,100 |
|
|
| 0 |
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Receivables |
|
| 15,830 |
|
|
| 72,251 |
|
Inventory |
|
| 97,850 |
|
|
| 79,510 |
|
Prepaid expenses and other current assets |
|
| 51,110 |
|
|
| 27,186 |
|
|
|
|
|
|
|
|
|
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Total current assets |
|
| 11,492,535 |
|
|
| 12,564,579 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET |
|
| 2,411,600 |
|
|
| 1,592,338 |
|
LAND AND BUILDINGS HELD FOR SALE |
|
| 258,751 |
|
|
| 258,751 |
|
OPERERATING LEASE RIGHT-OF-USE ASSET |
|
| 615,701 |
|
|
| 0 |
|
INVESTMENT IN RELATED COMPANY |
|
| 304,000 |
|
|
| 75,000 |
|
GOODWILL |
|
| 200,000 |
|
|
| 0 |
|
OTHER ASSETS, net |
|
| 131,546 |
|
|
| 15,059 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 15,414,133 |
|
| $ | 14,505,727 |
|
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LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 403,328 |
|
| $ | 291,973 |
|
Current maturities of long-term debt |
|
| 171,357 |
|
|
| 169,908 |
|
Current operating lease obligation |
|
| 34,400 |
|
|
| 0 |
|
Accrued expenses |
|
| 360,085 |
|
|
| 254,341 |
|
Income taxes payable |
|
| 198,749 |
|
|
| 209,088 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 1,167,919 |
|
|
| 925,310 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 2,790,728 |
|
|
| 2,833,064 |
|
NONCURRENT OPERATING LEASE OBLIGATION |
|
| 582,117 |
|
|
| 0 |
|
DEFERRED INCOME TAXES |
|
| 94,000 |
|
|
| 119,000 |
|
Total liabilities |
|
| 4,634,764 |
|
|
| 3,877,374 |
|
|
|
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COMMITMENTS AND CONTINGENCIES |
|
|
|
|
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SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 2,000,000 shares authorized, no shares outstanding at April 3, 2022 and January 2, 2022 |
|
| 0 |
|
|
| 0 |
|
Common stock, $0.002 par value, 50,000,000 authorized, 6,461,118 and 6,447,506 shares issued and outstanding at April 3, 2022 and January 2, 2022, respectively |
|
| 12,922 |
|
|
| 12,895 |
|
Additional paid-in capital |
|
| 11,324,035 |
|
|
| 11,215,696 |
|
Accumulated deficit |
|
| (557,588 | ) |
|
| (600,238 | ) |
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
| 10,779,369 |
|
|
| 10,628,353 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 15,414,133 |
|
| $ | 14,505,727 |
|
See Notes to Condensed Consolidated Financial Statements
BT BRANDS, INC. AND SUBSIDIARIES | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
(Unaudited) | ||||||||||||||||
| ||||||||||||||||
|
| 26 Weeks Ended |
|
| 26 Weeks Ended, |
|
| 13 Weeks Ended, |
|
| 13 Weeks Ended, |
| ||||
|
| July 3, 2022 |
|
| July 4, 2021 |
|
| July 3, 2022 |
|
| July 4, 2021 |
| ||||
SALES |
| $ | 5,598,076 |
|
| $ | 4,323,555 |
|
| $ | 3,524,881 |
|
| $ | 2,382,683 |
|
|
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COSTS AND EXPENSES |
|
|
|
|
|
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|
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|
|
|
|
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Restaurant operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 1,786,828 |
|
|
| 1,636,053 |
|
|
| 1,311,373 |
|
|
| 908,760 |
|
Labor costs |
|
| 435,920 |
|
|
| 1,186,719 |
|
|
| 1,179,118 |
|
|
| 621,227 |
|
Occupancy costs |
|
| 332,181 |
|
|
| 303,654 |
|
|
| 261,282 |
|
|
| 167,106 |
|
Other operating expenses |
|
| 178,701 |
|
|
| 252,081 |
|
|
| 212,314 |
|
|
| 128,872 |
|
Depreciation and amortization expenses |
|
| 178,701 |
|
|
| 113,394 |
|
|
| 109,286 |
|
|
| 58,558 |
|
General and administrative expenses |
|
| 746,717 |
|
|
| 220,982 |
|
|
| 455,656 |
|
|
| 110,983 |
|
Total costs and expenses |
|
| 5,513,303 |
|
|
| 3,712,883 |
|
|
| 3,529,029 |
|
|
| 1,995,506 |
|
Income from operations |
|
| 84,773 |
|
|
| 610,672 |
|
|
| (4,148 | ) |
|
| 387,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNREALIZED LOSS ON MARKETABLE SECURITIES |
|
| (80,238 | ) |
|
| 0 |
|
|
| (80,238 | ) |
|
| 0 |
|
INTEREST AND OTHER INCOME |
|
| 9,473 |
|
|
| 0 |
|
|
| 9,473 |
|
|
| 0 |
|
INTEREST EXPENSE |
|
| (54,461 | ) |
|
| (128,232 | ) |
|
| (26,190 | ) |
|
| (89,661 | ) |
EQUITY IN NET LOSS OF AFFILIATE |
|
| (14,172 | ) |
|
| 0 |
|
|
| (14,172 | ) |
|
| 0 |
|
INCOME (LOSS) BEFORE TAXES |
|
| (54,625 | ) |
|
| 482,440 |
|
|
| (115,275 | ) |
|
| 297,516 |
|
INCOME TAX (EXPENSE) BENEFIT |
|
| 5,000 |
|
|
| (135,000 | ) |
|
| 23,000 |
|
|
| (85,000 | ) |
NET INCOME (LOSS) |
| $ | (49,625 | ) |
| $ | 347,440 |
|
| $ | (92,275 | ) |
| $ | 212,516 |
|
NET INCOME (LOSS) PER COMMON SHARE - Basic and Diluted |
| $ | (0.01 | ) |
| $ | 0.09 |
|
| $ | (0.01 | ) |
| $ | 0.05 |
|
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|
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|
|
|
|
|
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|
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WEIGHTED AVERAGE SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted |
|
| 6,458,276 |
|
|
| 4,047,502 |
|
| 6,461,118 |
|
|
| 4,047,502 |
| |
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|
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See Notes to Consolidated Condensed Financial Statements |
5 |
Table of Contents |
| ||||||||||
| ||||||||||
|
|
| 13 Weeks Ended, |
|
| 13 Weeks Ended, |
| ||
|
| April 3, 2022 |
|
| April 4, 2021 |
| ||
|
|
|
|
|
|
| ||
SALES |
| $ | 2,073,195 |
|
| $ | 1,940,872 |
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 721,583 |
|
|
| 731,954 |
|
Labor costs |
|
| 607,710 |
|
|
| 565,492 |
|
Occupancy costs |
|
| 174,638 |
|
|
| 136,548 |
|
Other operating expenses |
|
| 119,867 |
|
|
| 123,209 |
|
Depreciation and amortization expenses |
|
| 69,415 |
|
|
| 54,836 |
|
General and administrative expenses |
|
| 291,061 |
|
|
| 105,338 |
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
| 1,984,274 |
|
|
| 1,717,377 |
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
| 88,921 |
|
|
| 223,495 |
|
INTEREST EXPENSE |
|
| (28,271 | ) |
|
| (38,571 | ) |
INCOME BEFORE TAXES |
|
| 60,650 |
|
|
| 184,924 |
|
INCOME TAXES |
|
| (18,000 | ) |
|
| (50,000 | ) |
NET INCOME |
| $ | 42,650 |
|
| $ | 134,924 |
|
NET INCOME PER COMMON SHARE - Basic and Diluted |
| $ | 0.01 |
|
| $ | 0.03 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted |
|
| 6,455,434 |
|
|
| 4,047,502 |
|
See Notes to Condensed Consolidated Financial Statements
BT BRANDS, INC. AND SUBSIDIARIES | ||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(Unaudited) | ||||||||||
|
|
|
| |||||||
| 26 Weeks ended, |
| ||||||||
|
| July 3, 2022 |
|
| July 4, 2021 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||||
Net Income (Loss) |
| $ | (49,625 | ) |
| $ | 347,440 |
| ||
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
| ||
provided by operating activities- |
|
|
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 178,701 |
|
|
| 113,394 |
| ||
Amortization of debt issuance premium included in interest expense |
|
| 2,700 |
|
|
| 54,205 |
| ||
Deferred taxes |
|
| (67,490 | ) |
|
| 28,000 |
| ||
Stock-based compensation |
|
| 73,400 |
|
|
| 0 |
| ||
Unrealized loss on marketable securities |
|
| 80,238 |
|
|
| 0 |
| ||
Loss on equity method investment |
|
| 14,172 |
|
|
| 0 |
| ||
Changes in operating assets and liabilities, net of acquisitions - |
|
|
|
|
|
|
|
| ||
Receivables |
|
| 36,183 |
|
|
| (12,721 | ) | ||
Inventory |
|
| (33,833 | ) |
|
| (9,913 | ) | ||
Prepaid expenses and other current assets |
|
| (26,274 | ) |
|
| (5,888 | ) | ||
Accounts payable |
|
| 206,284 |
|
|
| 127,814 |
| ||
Accrued expenses |
|
| 284,700 |
|
|
| (161,074 | ) | ||
Income taxes payable |
|
| (201,088 | ) |
|
| 14,994 |
| ||
Net cash provided by operating activities |
|
| 498,068 |
|
|
| 496,251 |
| ||
|
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
| ||
Acquisition of net assets of Keegan's Seafood Grille |
|
| (1,150,000 | ) |
|
| 0 |
| ||
Acquisition of net assets of Pie In The Sky Coffee and Bakery |
|
| (1,159,600 | ) |
|
| 0 |
| ||
Investment in Bagger Dave's Burger Tavern, Inc. |
|
| (1,260,000 | ) |
|
| 0 |
| ||
Purchase of property and equipment |
|
| (159,491 | ) |
|
| (67,003 | ) | ||
Investment in related company |
|
| (229,000 | ) |
|
| 0 |
| ||
Purchase of marketable securities |
|
| (607,988 | ) |
|
| 0 |
| ||
Other assets |
|
| (12,500 | ) |
|
| 0 |
| ||
Net cash used in investing activities |
|
| (4,578,579 | ) |
|
| (67,003 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| ||
Proceeds from long-term debt |
|
| 0 |
|
|
| 3,107,100 |
| ||
Principal payment on long-term debt |
|
| (84,035 | ) |
|
| (3,077,784 | ) | ||
Proceeds from exercise of common stock warrants |
|
| 74,866 |
|
|
| 0 |
| ||
Payment of debt issuance costs |
|
| 0 |
|
|
| (49,699 | ) | ||
Payment of deferred offering costs |
|
| 0 |
|
|
| (9,192 | ) | ||
Net cash used in financing activities |
|
| (9,169 | ) |
|
| (29,575 | ) | ||
|
|
|
|
|
|
|
|
| ||
CHANGE IN CASH |
|
| (4,089,680 | ) |
|
| 399,673 |
| ||
|
|
|
|
|
|
|
|
| ||
CASH, BEGINNING OF PERIOD |
|
| 12,385,632 |
|
|
| 1,321,244 |
| ||
|
|
|
|
|
|
| - |
| ||
CASH, END OF PERIOD |
| $ | 8,295,952 |
|
| $ | 1,720,917 |
| ||
|
|
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES |
|
|
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 51,761 |
|
| $ | 68,700 |
| ||
Cash paid for income taxes |
| $ | 209,088 |
|
| $ | 92,006 |
| ||
|
|
|
|
|
|
|
|
| ||
See Notes to Consolidated Condensed Financial Statements |
6 |
Table of Contents |
BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
BT BRANDS, INC. AND SUBSIDIARIES | BT BRANDS, INC. AND SUBSIDIARIES | |||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||
|
| (Unaudited) |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
For the 26-week periods- |
|
|
| Common Stock |
| Additional |
| Accumulated |
|
|
| |||||||||||||||||||||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| (Deficit) |
| Total |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Balances, January 2, 2022 |
| 6,447,506 |
| $ | 12,895 |
| $ | 11,215,696 |
| $ | (600,238 | ) |
| $ | 10,628,353 |
| ||||||||||||||||||||||||
Stock-based compensation |
| - |
| 0 |
| 73,400 |
| 0 |
| 73,400 |
| |||||||||||||||||||||||||||||
Shares issued in exercise of warrants |
| 13,612 |
| 27 |
| 74,839 |
| 0 |
| 74,866 |
| |||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (49,625 | ) |
|
| (49,625 | ) | ||||||||||||||||||||
Balances, July 3, 2022 |
|
| 6,461,118 |
|
| $ | 12,922 |
|
| $ | 11,363,935 |
|
| $ | (649,863 | ) |
| $ | 10,726,994 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
|
|
| Common Stock |
| Additional |
| Accumulated |
|
|
|
|
|
| Common Stock |
| Additional |
| Accumulated |
|
|
| ||||||||||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| (Deficit) |
| Total |
|
| Shares |
| Amount |
| Paid-in Capital |
| (Deficit) |
| Total |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Balances, January 3, 2021 |
| 4,047,502 |
| $ | 8,095 |
| $ | 497,671 |
| $ | (1,208,089 | ) |
| $ | (702,323 | ) |
| 4,047,502 |
| $ | 8,095 |
| $ | 497,671 |
| $ | (1,208,089 | ) |
| $ | (702,323 | ) | ||||||||
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 134,924 |
|
|
| 134,924 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 347,440 |
|
|
| 347,440 |
|
Balances, April 4, 2021 |
|
| 4,047,502 |
|
|
| 8,095 |
|
|
| 497,671 |
|
|
| (1,073,165 | ) |
|
| (567,399 | ) | ||||||||||||||||||||
Balances, July 4, 2021 |
|
| 4,047,502 |
|
| $ | 8,095 |
|
| $ | 497,671 |
|
| $ | (860,649 | ) |
| $ | (354,883 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
For the 13-week periods- |
|
|
| Common Stock |
| Additional |
| Accumulated |
|
|
| |||||||||||||||||||||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| (Deficit) |
| Total |
| |||||||||||||||||||||||||||||
Balances, April 3, 2022 |
| 6,461,118 |
| $ | 12,922 |
| $ | 11,324,035 |
| $ | (557,588 | ) |
| $ | 10,779,369 |
| ||||||||||||||||||||||||
Stock-based compensation |
| - |
| 0 |
| 39,900 |
| 0 |
| 39,900 |
| |||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (92,275 | ) |
|
| (92,275 | ) | ||||||||||||||||||||
Balances, July 3, 2022 |
|
| 6,461,118 |
|
| $ | 12,922 |
|
| $ | 11,363,935 |
|
| $ | (649,863 | ) |
| $ | 10,726,994 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
| Common Stock |
| Additional |
| Accumulated |
|
|
|
|
|
| Common Stock |
| Additional |
| Accumulated |
|
|
| ||||||||||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| (Deficit) |
| Total |
|
| Shares |
| Amount |
| Paid-in Capital |
| (Deficit) |
| Total |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Balances, January 2, 2022 |
| 6,447,506 |
| $ | 12,895 |
| $ | 11,215,696 |
| $ | (600,238 | ) |
| $ | 10,628,353 |
| ||||||||||||||||||||||||
Stock-based compensation |
| - |
| 0 |
| 33,500 |
| 0 |
| 33,500 |
| |||||||||||||||||||||||||||||
Exercise of common stock warrants |
| 13,612 |
| 27 |
| 74,839 |
| 0 |
| 74,866 |
| |||||||||||||||||||||||||||||
Balances, April 4, 2021 |
| 4,047,502 |
| $ | 8,095 |
| $ | 497,671 |
| $ | (1,073,165 | ) |
| $ | (567,399 | ) | ||||||||||||||||||||||||
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 42,650 |
|
|
| 42,650 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 212,516 |
|
|
| 212,516 |
|
Balances, April 3, 2022 |
|
| 6,461,118 |
|
|
| 12,922 |
|
|
| 11,324,035 |
|
|
| (557,588 | ) |
|
| 10,779,369 |
| ||||||||||||||||||||
Balances, July 4, 2021 |
|
| 4,047,502 |
|
| $ | 8,095 |
|
| $ | 497,671 |
|
| $ | (860,649 | ) |
| $ | (354,883 | ) |
See Notes to Condensed Consolidated Financial Statements
7 |
Table of Contents |
BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| 13 Weeks ended, |
| |||||
|
| April 3, 2022 |
|
| April 4, 2021 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net Income |
| $ | 42,650 |
|
| $ | 134,924 |
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
|
provided by operating activities- |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 69,415 |
|
|
| 56,301 |
|
Amortization of debt issuance premium included interest expense |
|
| 1,350 |
|
|
| 0 |
|
Deferred taxes |
|
| (25,000 | ) |
|
| 10,000 |
|
Stock-based compensation |
|
| 33,500 |
|
|
| 0 |
|
Unrealized loss on available-for-sale securities |
|
| 6,746 |
|
|
| 0 |
|
Changes in operating assets and liabilities, net of acquisition - |
|
|
|
|
|
|
|
|
Receivables |
|
| 56,421 |
|
|
| 14,483 |
|
Inventory |
|
| (8,291 | ) |
|
| (7,018 | ) |
Prepaid expenses and other current assets |
|
| (23,924 | ) |
|
| (7,143 | ) |
Other assets |
|
| (10,000 | ) |
|
| 0 |
|
Accounts payable |
|
| 111,355 |
|
|
| 178,716 |
|
Accrued expenses |
|
| 93,511 |
|
|
| (177,971 | ) |
Income taxes payable |
|
| (10,339 | ) |
|
| 40,000 |
|
Net cash provided by operating activities |
|
| 337,394 |
|
|
| 242,292 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Acquisition of assets of Keegan's Seafood Grille |
|
| (1,150,000 | ) |
|
|
|
|
Purchase of property and equipment |
|
| (10,164 | ) |
|
| (40,709 | ) |
Investment in related company |
|
| (229,000 | ) |
|
|
|
|
Other assets |
|
| (32,000 | ) |
|
|
|
|
Purchase of Maketable securities |
|
| (260,846 | ) |
|
|
|
|
Net cash used in investing activities |
|
| (1,682,010 | ) |
|
| (40,709 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from exercise of common stock warrants |
|
| 74,866 |
|
|
| 0 |
|
Principal payments on long-term debt |
|
| (42,237 | ) |
|
| (62,729 | ) |
Net cash provided by (used in) financing activities |
|
| 32,629 |
|
|
| (62,729 | ) |
|
|
|
|
|
|
|
|
|
CHANGE IN CASH |
|
| (1,311,987 | ) |
|
| 138,854 |
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD |
|
| 12,385,632 |
|
|
| 1,321,244 |
|
|
|
|
|
|
|
| - |
|
CASH, END OF PERIOD |
| $ | 11,073,645 |
|
| $ | 1,460,098 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 26,291 |
|
| $ | 37,106 |
|
See Notes to Condensed Consolidated Financial Statements
BT BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of BT Brands, Inc., and its subsidiaries (the "Company,“Company,” "we,“we,” "our,“our,” "us,“us,” “BT Brands,” or "BT Brands"“BT”) and have been prepared in accordance with the U.S. generally accepted accounting principles ("GAAP"(“GAAP”) for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) requirements for Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated in consolidation andconsolidation. The financial statements have been prepared on a basis consistent in all material respects with the accounting policies for the fiscal year ended January 2, 2022. 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 AprilJuly 3, 2022, 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 January 2, 2022, and the related notes thereto included in the Company'sour Form 10-K for the fiscal year ended January 2, 2022.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material.
The Company
BT Brands, Inc. (the "Company") was incorporated as Hartmax of NY Inc. on January 19, 2016. Effective on July 30, 2018, the Company acquired 100% of BTND, LLC.
Business
As of AprilJuly 3, 2022, weBT Brands owned and operated eleventwelve restaurants, including nine Burger Time fast-food restaurants one Dairy Queen fast-food restaurant, and Keegan's Seafood Grille ("Keegan's"), a dine-in restaurant located in Florida. Our fast-food restaurants are all located in the North Central region of the United States.States, a Dairy Queen fast-food franchised location in suburban Minneapolis, Minnesota, collectively (“BTND”). We own Keegan’s Seafood Grille (“Keegan’s”), a dine-in restaurant located in Florida, and Pie In The Sky Coffee and Bakery (“PIE”), a casual dining coffee shop and bakery located in Woods Hole, Massachusetts. Our Burger Time restaurants feature a wide variety of burgers and other affordable foods, such as chicken sandwiches, pulled pork sandwiches, sides, and soft drinks. Our Dairy Queen restaurant offers the established Dairy Queenfranchisor proscribed menu consisting of burgers, chicken, sides, ice cream, other desserts, and various beverages. Keegan'sKeegan’s Seafood Grille has operated in Indian Rocks Beach, Florida, for more than thirty-five years and offers a variety of traditional fresh seafood items for lunch and dinner. The menu at Keegan'sKeegan’s includes beer and wine. PIE features an array of fresh baked goods, freshly made sandwiches, and our locally roasted coffee. Our revenues are derived principally from the sale of food and beverages at our restaurants,restaurants; retail goods such as apparel, private-labeled “Keegan’s Hot Sauce,” and branded retail merchandise accountsother souvenir items account for an insignificant portion of our income.
On June 2, 2022, BT Brands completed the purchase of 11,095,085 common shares representing 41.2% of Bagger Dave’s Burger Tavern, Inc. (“Bagger Dave’s”). We acquired the shares from the Bagger Dave’s founder for $1,260,000, or approximately $0.114 per share. Following the investment, representatives of BT Brands were appointed to two of the three positions on Bagger Dave’s Board of Directors. Bagger Dave’s specializes in locally sourced, never-frozen prime rib recipe burgers, all-natural lean turkey burgers, hand-cut fries, locally crafted beers on draft, milkshakes, salads, black bean turkey chili, and pizza. The Company'sfirst Bagger Dave’s opened in January 2008 in Berkley, Michigan. There are currently six Bagger Dave’s restaurants, including four in Michigan and single units in Ft. Wayne, Indiana, and Centerville, Ohio.
Our Dairy Queen storelocation is operated under a franchise agreement with International Dairy Queen. The Company paysWe pay royalty and advertising payments to the franchisor as required by the franchise agreement.
8 |
Table of Contents |
Fiscal Year Period
The Company'sBT Brand’s fiscal year is a 52/53-week year, ending on the Sunday closest to December 31. Most years consist of four 13-week accounting periods comprising thea 52-week year. All references to years in this report refer to the 13-week periods in the respective fiscal year periods. The fiscal yearFiscal 2022 is 52 weeks ending January 1, 2023.2023, and fiscal 2021 was a 52-weeks ending January 2, 2022.
Cash |
Cash
Investment
Our 41.2% ownership of Bagger Dave’s is accounted for using the “equity method” of accounting. Under the equity method, our share of the net income (loss) is recognized as income (loss) in our condensed consolidated statements of income and added to (subtracted from) the investment account. Dividends received, if any, are deducted from the investment. See Note 9 for information regarding our related party investment.
Fair Value of Financial Instruments
The Company'sOur accounting for fair value measurements of assets and liabilities, including available-for-sale securities, is that they are recognized or disclosed at fair value in the statements on a recurring or nonrecurring basis, adhere to the Financial Accounting Standards Board (FASB) fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value.
The hierarchy prioritizes unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:follows:
| · | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that |
|
|
|
| · | Level 2 inputs are inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the entire term of the asset or liability. |
|
|
|
| · | Level 3 |
The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to fair value measurement in its entirety.
The carrying values of cash, receivables, accounts payable, and other financial working capital items approximate fair value due to the short maturity nature of these instruments.
Equity investmentsInvestments in marketable equity securities are carried at fair value. At AprilOn July 3, 2022, the $6,745 reduction from cost to fair value was not considered material and is included in general and administrative expenses. On April 3, 2022, the cost of marketable securities consisted of a single Nasdaq-listed level-one securityequity securities with a historical cost of $260,845. This investment is$607,988. These investments are reflected in the accompanying financial statements at Aprilon July 3, 2022, at the level-one fair value quoted in an active market of $254,100.$527,750.
Receivables
Receivables consist mainly of rebates due from a primary vendor.
Inventory
Inventory consists of food, beverages, and supplies and is stated at a lower of cost (first-in, first-out method) or net realizable value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives, ranging from three to thirty years.
9 |
Table of Contents |
The Company reviews
We review long-lived assets to determine if the carrying value of these assets is recoverable based on estimated cash flows. Assets are evaluated at the lowest level for which cash flows can be identified at the restaurant level. In determining future cash flows, estimates are made by us for the Company for future operating results of each restaurant. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets.
Goodwill
Goodwill is the excess of the purchase price over the estimated fair value of acquired business assets. In accordance with GAAP, goodwillGoodwill is not amortized. The CompanyWe periodically assessesassess goodwill for impairment. Management has estimatedimpairment and have determined there is no impairment of goodwillGoodwill at AprilJuly 3, 2022,2022.
Intangible Assets |
Intangible assets with estimated finite lives result from business acquisitions and include allocated cost of trademarks, tradenames, a covenant not to compete, websites, and social media accounts. The costs of purchased intangible assets are recorded at the estimated value and are amortized over 4 to 20 years.
Assets Held for Sale
As of
Income Taxes
ThsThe Company provides for income taxes under (AccountingAccounting Standards Codification (ASC), 740),740, Accounting for Income Taxes. ASC 740 uses an asset and liability approach in accounting for income taxes. Deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities. They are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company providesIf necessary, we provide a valuation allowance if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary.
As of AprilJuly 3, 2022, the Company estimateswe estimated a current tax provision at the net combined federal and state statutory rate of approximately 27.5%.
The Company has no accrued interest or penalties relating to income tax obligations. The CompanyThere currently hasare no federal or state examinations in progress, norprogress. The Company has itnot had any federal or state tax examinations since its inception. All periods since inception remain open for inspection.
Per Common Share Amounts
Net income per common share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted net income or loss per share is calculated by dividing net income by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted per share amounts if their effect is anti-dilutive. There were no dilutive shares as offor the periods ending in 2022 and 2021.
10 |
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Table of Contents |
NOTE 2 – ACQUISITION ACQUISITIONS
Restaurant Acquisition - Keegan'sKeegan’s
On March 2, 2022, the Company,BT Brands, through its 1519BT, LLC subsidiary ("1519BT")(“1519BT “), purchased the net assets of Keegan’s, Seafood Grille, a fresh seafood restaurant located in Indian Rocks Springs, Florida (“Keegan’s).Florida. Concurrent with the purchase, the Companywe entered into a 131-month lease for a location for the approximately 2800 square foot space Keegan'sthat Keegan’s has operated inoccupied for more than 35 years. The CompanyWe acquired the Keegan'sKeegan’s tradename as part of the purchase and will continue to operate under the Keegan'sbusiness as Keegan’s Seafood Grille name.Grille. The purchase price was approximately $1.150$1.15 million, paid in cash at closing.
The Keegan'sKeegan’s acquisition was accounted for using the acquisition method of accounting following ASC 805 "Business“Business Combinations."” Accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired were recorded at their estimated fair values. The Company recorded provisional amounts and will complete the acquisition accounting once it finalizes its valuation analysis.
As a result of the Keegan’s acquisition, we provisionally recorded $200,000 in goodwill, representing the excess of fair value over the purchase price of the identifiable assets; the allocation to purchased goodwill is expected to be deductible for income tax purposes over fifteen years.
The following table presents the preliminary estimate of the fair value of the assets acquired, and liabilities assumed in the Keegan’s transaction:
Assets acquired: |
|
|
| |
Inventory |
| $ | 10,049 |
|
Equipment |
|
| 428,000 |
|
Leasehold improvements |
|
| 450,000 |
|
Trademark, website, and other intangibles |
|
| 75,000 |
|
|
|
|
|
|
Total identifiable assets |
|
| 963,049 |
|
Assumed current liabilities |
|
| (17,260 | ) |
Net assets acquired |
|
| 945,789 |
|
Goodwill |
|
| 204,211 |
|
Purchase price |
| $ | 1,150,000 |
|
Restaurant Acquisition – Pie In the Sky Coffee and Bakery
On May 11, 2022, our 10Water Street, LLC subsidiary (“10Water”) purchased the net assets of PIE, a bakery and coffee shop located in Woods Hole, Massachusetts. Concurrent with the purchase, we entered into a 60-month lease, including three additional five-year renewal options. The lease covers the approximately 3,500 square feet PIE has operated in for more than 20 years. We acquired the Pie in the Sky tradename and the piecoffee.com website URL as part of the purchase and will continue to operate as Pie in the Sky. The purchase price was approximately $1.16 million, including $1.15 million in cash paid at closing.
The acquisition of PIE was accounted for following ASC 805 “Business Combinations.” Accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired were recorded at their estimated fair values based on information available as of April 3, 2022. The Companythe closing date. We recorded provisional amounts for the acquired assets including goodwill as of April 3, 2022the purchase date and will complete the acquisition accounting once it finalizes itswe finalize the valuation analysis.
As a result of the Keegan’sPIE acquisition, the Companywe provisionally recorded $200,000$270,100 in Goodwill,goodwill, representing the excess of fair value over the purchase price of the identifiable assets, which is expected to be deductible for income tax purposes over fifteen years.
11 |
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The following table presents theour preliminary estimate of the fair value of the assets acquired and liabilities assumed in the Keegan'sPIE transaction is:
Assets acquired: |
|
|
|
|
|
| ||
Inventory |
| $ | 10,049 |
|
| $ | 23,500 |
|
Equipment |
| 428,000 |
|
| 400,000 |
| ||
Leasehold improvements |
| 450,000 |
| |||||
Trademark, website and other intangibles |
| 75,000 |
| |||||
Total identifiable assets acquired |
| 963,049 |
| |||||
Furniture and fixtures |
| 125,000 |
| |||||
Trademark, website, and other intangibles |
| 50,000 |
| |||||
Non-compete agreement |
| 300,000 |
| |||||
|
|
|
|
|
|
|
| |
Liabilities assumed: |
|
|
| |||||
Gift card liability |
|
| 13,049 |
| ||||
Total assets acquired |
| 898,500 |
| |||||
|
|
|
| |||||
Assumed current liabilities |
| (23,120 | ) | |||||
|
|
|
|
| ||||
Net assets acquired |
| 950,000 |
|
| 875,380 |
| ||
Goodwill |
|
| 200,000 |
|
|
| 284,220 |
|
Purchase price |
| $ | 1,150,000 |
|
| $ | 1,159,600 |
|
NOTE 3 -– INTANGIBLE ASSETS
At July 3, 2022, based upon our preliminary evaluation of the value of acquired assets, Intangible Assets are the following:
|
| Estimated Useful Life (Years) |
|
| Amount |
| ||
|
|
|
|
|
|
| ||
Covenant not to compete |
|
| 4 |
|
| $ | 300,000 |
|
Trademarks, tradenames, websites and social media accounts |
|
| 20 |
|
|
| 125,000 |
|
|
|
|
|
|
| $ | 425,000 |
|
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
| April 3, 2022 |
|
| January 2, 2022 |
|
| July 3, 2022 |
|
| January 2, 2022 |
| ||||
Land |
| $ | 485,239 |
| $ | 485,239 |
|
| $ | 485,239 |
| $ | 485,239 |
| ||
Equipment |
| 3,082,831 |
| 2,674,529 |
|
| 3,417,413 |
| 2,674,529 |
| ||||||
Buildings and leasehold improvements |
|
| 1,800,014 |
|
|
| 1,322,085 |
|
|
| 1,998,516 |
|
|
| 1,322,085 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total property and equipment |
| 5,368,084 |
| 4,481,853 |
|
| 5,901,168 |
| 4,481,853 |
| ||||||
Accumulated depreciation |
| (2,697,733 | ) |
| (2,630,764 | ) |
| (2,680,610 | ) |
| (2,630,764 | ) | ||||
Less - property held for sale |
|
| (258,751 | ) |
|
| (258,751 | ) |
|
| (258,751 | ) |
|
| (258,751 | ) |
Net property and equipment |
| $ | 2,411,600 |
|
| $ | 1,592,338 |
|
| $ | 2,961,807 |
|
| $ | 1,592,338 |
|
Depreciation expense for the 13-week26-week periods in 2022 and 2021 was $68,902$177,676 and $54,269,$113,394, respectively.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses consisted of the following at:
|
| April 3, 2022 |
|
| January 2, 2022 |
| ||
Accrued real estate taxes |
| $ | 73,211 |
|
| $ | 103,615 |
|
Accrued bonus compensation |
|
| 7,000 |
|
|
| 7,000 |
|
Accrued payroll |
|
| 126,432 |
|
|
| 44,700 |
|
Accrued payroll taxes |
|
| 14,599 |
|
|
| 8,424 |
|
Accrued sales taxes payable |
|
| 80,714 |
|
|
| 50,414 |
|
Accrued vacation pay |
|
| 17,663 |
|
|
| 17,663 |
|
Accrued gift card liability |
|
| 23,622 |
|
|
| 10,036 |
|
Accrued franchise royalty |
|
| 2,931 |
|
|
| 2,614 |
|
Other accrued expenses |
|
| 13,913 |
|
|
| 9,875 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 360,085 |
|
| $ | 254,341 |
|
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NOTE 5 - ACCRUED EXPENSES
Accrued expenses consisted of the following at:
|
| July 3, 2022 |
|
| January 2, 2022 |
| ||
Accrued real estate taxes |
| $ | 88,800 |
|
| $ | 103,615 |
|
Accrued bonus compensation |
|
| 59,139 |
|
|
| 7,000 |
|
Accrued payroll |
|
| 228,127 |
|
|
| 44,700 |
|
Accrued payroll taxes |
|
| 13,398 |
|
|
| 8,424 |
|
Accrued sales taxes payable |
|
| 118,468 |
|
|
| 50,414 |
|
Accrued vacation pay |
|
| 17,664 |
|
|
| 17,663 |
|
Accrued gift card liability |
|
| 29,295 |
|
|
| 10,036 |
|
Accrued franchise royalty |
|
| 6,494 |
|
|
| 2,614 |
|
Other accrued expenses |
|
| 14,405 |
|
|
| 9,875 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 575,790 |
|
| $ | 254,341 |
|
NOTE 6 - LONG TERM DEBT
The Company'sOur long-term debt is as follows:
|
| April 3, 2022 |
| January 2, 2022 |
|
| July 3, 2022 |
|
| January 2, 2022 |
| |||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Three notes payable to a 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 on Company owned properties. The notes are guarenteed by BT Brands, Inc. and a shareholder of the Company. |
| $ | 2,987,109 |
| $ | 3,027,971 |
| |||||||||
Three notes payable to a 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 ten BTND operating locations. The notes are guaranteed by BT Brands, Inc. and a shareholder of the Company. |
| $ | 2,946,685 |
| $ | 3,027,971 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
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. |
|
| 20,625 |
|
| 22,000 |
|
|
| 19,250 |
|
|
| 22,000 |
| |
|
| 3,007,734 |
| 3,049,971 |
|
| 2,965,935 |
| 3,049,971 |
| ||||||
Less - unamortized debt issuance costs |
| (45,649 | ) |
| (46,999 | ) |
| (44,298 | ) |
| (46,999 | ) | ||||
Current maturities |
|
| (171,357 | ) |
|
| (169,908 | ) |
|
| (171,358 | ) |
|
| (169,908 | ) |
|
|
|
|
|
|
| $ | 2,750,279 |
|
| $ | 2,833,064 |
| |||
|
| $ | 2,790,728 |
| $ | 2,833,064 |
|
NOTE 67 - STOCK-BASED COMPENSATION
In 2019, the Company adopted the 2019 BT Brands Incentive Plan (the "2019“2019 Incentive Plan"Plan”), under which it may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units, and other stock and cash awards to eligible participants. The number of common shares reserved for issuance is 250,000. As of AprilJuly 3, 2022, there were 5,00013,400 shares available for a grant under the 2019 Incentive Plan.
During the year ended January 2, 2022, we issued options to purchase 15,000 shares of common stock under the "2019“2019 Incentive Plan as stock awards to three directors of the Company in connection with their joining the board of directors. The options are exercisable at $5 per share through 2031. In the first quarterhalf of 2022, the companywe granted 215,750220,750 options to employees and consultants to purchase shares at $2.50 per share.
Stock options granted to employees and directors generally vest over two to five years, in monthly or annual installments, as outlined in each agreement. Options expire ten years from the date of grant. Compensation expense equal to the grant date fair value of the options at the grant date is recognized in general and administrative expense over the applicable service period. Compensation expense for the first-quarter period26 weeks in 2022 was $33,500$73,400 and was zero in the first quarter ofa similar period in 2021. Based on current estimates, we project that for current grants, approximately $230,000 in stock-based compensation expense will be recognized in future periods.
13 |
Table of Contents |
The Company utilizes
We utilize the Black-Scholes option pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:
|
| Stock price – Published trading market values of the |
|
| Exercise price – The stated exercise price of the stock option. |
|
| Expected life – The simplified method |
|
| Expected dividend – The rate of dividends |
|
| Volatility – Estimated volatility. |
|
| Risk-free interest rate – The daily United States Treasury yield curve rate corresponding to the expected life of the award. |
The Company recognized stock-based compensation expense in its consolidated statements of operations for the three and nine months ended April 3, 2022, as follows:
Information regarding the Company'sour stock options is summarized below:
|
| Number of |
| Weighted Average |
| Weighted Average Remaining Contract Term |
| Aggregate Intrinsic |
|
| Number of |
| Weighted Average |
| Weighted Average Remaining Term |
| Aggregate Intrinsic |
| ||||||||||||||
|
| Options |
|
| Exercise Price |
|
| (In Years) |
| Value |
|
| Options |
| Exercise Price |
| (In Years) |
| Value |
| ||||||||||||
Options outstanding at January 2, 2022 |
| 15,000 |
| $ | 5.00 |
| 9.3 |
| $ | 0 |
|
| 15,000 |
| $ | 5.00 |
| 9.3 |
| $ | 0 |
| ||||||||||
Granted |
| 215,750 |
| 2.50 |
|
|
| 0 |
|
| 220,750 |
| 2.50 |
|
|
| $ | 0 |
| |||||||||||||
Exercised |
| 0 |
| 0 |
|
|
|
|
|
| 0 |
| 0 |
|
|
| $ | 0 |
| |||||||||||||
Canceled, forfeited, or expired |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
| (8,200 | ) |
|
| 2.50 |
|
|
|
| $ | 0 |
| |||||
Options outstanding at April 3, 2022 |
| 230,750 |
| $ | 2.66 |
| 9.8 |
| $ | 0 |
| |||||||||||||||||||||
Options exercisable at April 3, 2022 |
|
| 58,150 |
|
| $ | 3.13 |
|
| 9.7 |
| $ | 0 |
| ||||||||||||||||||
Options outstanding at July 3, 2022 |
|
| 227,550 |
|
| $ | 2.67 |
|
| 9.8 |
| $ | 0 |
| ||||||||||||||||||
Options exercisable at July 3, 2022 |
|
| 59,150 |
|
| $ | 3.18 |
|
| 9.7 |
| $ | 0 |
|
The Black-Scholes option-pricing model was used to estimate the fair value of the stock options with the following weighted-average assumptions for grants during the period ended AprilJuly 3, 2022:
Fair value of options granted during the period |
| $ | 1.392 |
|
| $ | 1.39 |
|
Expected life (in years) |
| 4.833 |
|
| 4.83 |
| ||
Expected dividend |
| $ | — |
|
| $ | 0 |
|
Expected stock volatility |
| 63 | % |
| 63 | % | ||
Risk-free interest rate |
| 2 | % |
| 2 | % |
On February 9, 2022, the independent members of the Board of Directors andcomprising its Compensation Committee approved a proposal wherein, so long as the Company’s publicly traded warrants are outstanding, senior management of the Company will be granted 250,000 shares of common stock as an award upon the Company'sCompany’s share price reaching $8.50 per share.share for 20 consecutive trading days. Final approval of the planproposal is contingent upon shareholder approval of an expandedincrease in the number of shares available under the 2019 Incentive Stock Plan, which is expected to be proposed at the next meeting of shareholders of the company.shareholders.
NOTE 78 – LEASES
Concurrent with the closing of the acquisition of Keegan'sKeegan’s net assets, the Companywe entered into a lease for approximately 2,800 square feet of space the restaurant occupies.space. The terms of the 131-month Keegan’s lease provideprovides for an initial rent of $5,000 per month with an annual escalation equal to the greater of 3% or the Consumer Price Index. The lease is being accounted for as an operating lease. At the inception of the lease, the Companywe recorded both an operating lease obligation and a right-of-use asset of $624,000. The present value discounted at 4% of the remaining lease obligation of $616,517$607,220 is reflected as a liability in the accompanying financial statements.
Because ourKeegan’s lease for the Keegan location does not provide an implicit interest rate,rate; we used our incremental borrowing rate of 4% to determine the lease payments' present value. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility costsexpenses, and sales tax. In addition
Concurrent with the acquisition of PIE assets, we entered into a lease for approximately 3,500 square feet of restaurant and bakery production space. The terms of the 60-month lease provide for an initial rent of $10,000 per month with an annual escalation after 24 months of 3%. The PIE lease includes three five-year renewal option periods. The PIE lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $554,849. The present value discounted at 5% of the remaining lease obligation of $542,578 is reflected as a liability in the accompanying financial statements. The weighted-average remaining lease term is approximately 6.9 years.
14 |
Table of Contents |
The PIE lease did not provide an implicit interest rate; we used our estimated incremental borrowing rate of 5% to determine the present value of future lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the operating lease cost,payments on a collateralized basis over the Company will incur certain variablelease term. Variable lease costs which are expected to average approximately $3,000 per month beginning in April 2022. consist primarily of property taxes, insurance, certain utility expenses, and sales tax.
Following is a schedule of the approximate minimum future lease payments on the operating lease for the Keegans operating locationleases as of AprilJuly 3, 2022:
2022 |
| $ | 50,000 |
| ||||
|
| Total |
| |||||
Remainder 2022 |
| $ | 90,000 |
| ||||
2023 |
| 61,650 |
|
| 181,350 |
| ||
2024 |
| 63,500 |
|
| 185,990 |
| ||
2025 |
| 67,400 |
|
| 190,600 |
| ||
2026 |
| 69,400 |
|
| 196,000 |
| ||
2027 and thereafter |
|
| 459,050 |
|
|
| 495,054 |
|
|
|
|
| |||||
Total future minimum lease payments |
| 762,000 |
|
| 1,338,994 |
| ||
Less - interest |
|
| 145,483 |
|
|
| (189,196 | ) |
Present value of lease payments |
| $ | 616,517 |
| ||||
|
| $ | 1,149,798 |
|
The Company is a party to a month-to-month land lease agreement for one of its Burger Time locations. The net book value of the building located on this land is approximately $ 18,500.$18,500. The monthly lease payment is $1,600 plus the cost of property taxes.
The Company also rentspays a monthly rent, for month-to-month arrangements, for corporate and administrative office spacespaces in West Fargo, North Dakota, and Minnetonka, Minnesota, for a combined monthly rent of approximately $2,200.
NOTE 89 - RELATED PARTY TRANSACTIONSTRANSACTION
Next Gen Ice
In 2019, the CompanyBT Brands made cash advances to Next Gen Ice, Inc. (NGI) in the form of Series C Notes totaling a principal amount of $179,000 ("Notes"(“Notes”). The Company'sOur CEO, Gary Copperud, is Chairman of the Board of Directors of NGI. The Company'sOur Chief Operating Officer, Kenneth Brimmer, is also a member of the Board of Directors of NGI and serves as Chief Financial Officer of NGI on a part-time contract basis.NGI. When the loan was made, Mr. Copperud and a limited liability companyan entity controlled by him together ownowned approximately 34% of the outstanding equity of NGI. The Notes were modified on March 2, 2020, and the maturity was extended to August 31, 2020. As part of thea Note modification, the CompanyBT Brands received 179,000 shares of common stock in Next Gen IceNGI from the founders of NGI, representing approximately 2% of NGI shares outstanding. The CompanyBT Brands also holds warrants expiring March 31, 2028, to purchase 358,000 shares of common stock for $1.00 per share, which were initially set to expire on March 31, 2023. Effective with the Company’s agreement to make an additional investment in February 2022, the expiration date of the 358,000 $1.00 stock purchase warrants was extended by five years to March 31, 2028.share. The common stock and common stock purchase warrants received by the Company were recorded at a value determined by the CompanyBT Brands of $75,000.
The Company has determined that its investment in NGI does not have a readily determinable market value. Therefore, it is carried at thea cost determined by the Company when the shares and warrants were received. The Notes were repaid in August 2020 with interest.BT Brands. On February 2, 2022, the Company made an additional investment into NGI ofBT Brands invested $229,000 in NGI Series A1 8% Cumulative Convertible Preferred Stock, includingwhich included a five-year warrant to purchase 57,250 shares at $1.65 per share. The total value of the Company’sour investment in NGI at AprilJuly 3, 2022, is its fair value of $304,000, comprised of the $75,000 value determined by the CompanyBT Brands for the initial common shares and warrants and the $209,000$229,000 cost of the February 2, investment in the NGI Convertible Preferred Stock and Warrants.warrants.
NOTE 9 -10 – CONTINGENCIES
In the course of its business, the Company may be a party to claims and legal or regulatory actions arising from the conduct of its business. The Company isWe are not aware of any significant asserted or potential claims whichthat could impact itsour financial position.
NOTE 1011 – SUBSEQUENT EVENT
Acquisition of Village Bier Garten Restaurant
On May 11,August 4, 2022, BT Brands, through our 1519BT, LLC subsidiary, completed the Company acquiredpurchase of the assets of an operating bakery and coffee shop located in Woods Hole, Massachusetts. The acquired assets have operated as Pie In The Sky Coffee and Bakery (“Pie Coffee”) for more than 20 years, near the Ferry Terminal in Woods Hole. Pie Coffee serves the local Woods Hole market and a significant seasonal market of visitors to Cape Cod and the Ferry Terminal.business operating as Van Stephan Village Bier Garten, a full-service bar and restaurant in Cocoa, Florida. The Pie Coffee assets were acquired for $1,173,500 of cash.restaurant features a German-themed menu, specialty imported European beers, and regular entertainment. The Company has not yet finalizedpurchase price was $6,900,000, paid in cash at closing. Concurrent with the allocation of the purchase price. At the time of purchase, we entered into a five-year triple-net lease with three five-year renewal options for the property currently occupied by Pie Coffee with three 5-year renewal options.the business. The terms of the triple net lease call for an initial monthly rent of $10,000 per month for 24 months increases annually at 3% during the lease term and option periods.$8,200.
15 |
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of the financial condition, results of operations, liquidity and capital resources of BT Brands, Inc. and its wholly-owned subsidiaries (together, “BT Brands” or the "Company"“Company”) should be read in conjunction with the Company'sCompany’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'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company'sCompany’s annual report on Form 10-K for the year ended January 2, 2022.
Introduction
As of April 2,July 3, 2022, including our partially owned Bagger Dave’s business, we owned and operated eleveneighteen restaurants, including ninecomprising the following:
· | Nine Burger Time fast-food restaurants and one Dairy Queen franchise, all of which are in the North Central region of the United States; | |
· | Bagger Dave’s Burger Tavern, Inc, a 41.2% owned affiliate, operates six Bagger Dave’s restaurants in Michigan, Ohio, and Indiana; | |
· | Keegan’s Seafood Grille in Indian Rocks Beach, Florida; | |
· | Pie in the Sky Coffee Shop and Bakery in Woods Hole, Massachusetts. |
The first Burger Time fast-food restaurants, one Dairy Queen fast-food restaurant and Keegan's Seafood Grille, a dine-in restaurant locatedopened in Florida. Our fast-food restaurants are all locatedFargo, North Dakota, in 1987. BTND, LLC purchased the North Central regionassets of the United States. OurBurger Time in May 2007. Burger Time restaurants feature a wide variety of burgers and otheradditional affordable 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, other desserts, and various beverages. Keegan's Seafood Grille has operated in Indian Rocks Beach, Florida, for more than thirty-five years and offers a variety of traditional fresh seafood items for lunch and dinner. The menu at Keegan's includes beer and wine. Our revenues are derived principally from the sale of food and beverages at our restaurants and branded retail merchandise, which accounts for an insignificant portion of our income.
Our Burger TimeTime’s operating principles include: (i) offering a "Bigger Burger" to deliver our customers "more good foodbigger burgers and more value for your money";the money; (ii) offering a limited menu to permit attention to quality and speed of preparation; (iii) providing fast service by way of single and double drive-thru designs and a point-of-sale system that expedites the ordering and preparation process;process, and (iv) great tasting and quality food made fresh to order at a fair price. Our primary strategy is to serve the drive-thru and take-out segment of the quick-service restaurant industry.
Operationally, we take several steps to maintainstrive for efficiency at our Burger Time restaurants, including maintaining an inventory of typically less than $20,000approximately $15,000 per store, at any given time (which also allowsallowing for frequent deliveriesfresh food deliveries. Historically, our Burger Time investment model targeted an average cash investment of fresh food).between $325,000 and $535,000.
OurThe average customer transaction at our Burger Time restaurants increased by approximately 4% in the first threesix months of fiscal 2022 compared to 2021 and currently is approximately $12.10.$12.50. This recent increase is principally the resultbecause of a menu price increase implemented in 2021. Our2021 and a 2022 price increase of approximately 10% on our popular “Deal of the Day” offering. Many factors influence our sales trends are influenced by many factors, including the COVID pandemic, which was a positive for our sales.trends. The business environment remainsis challenging for smaller restaurant chains as competition from the major fast-food hamburger-focused business is intense.
InBT Brands operates Burger Time restaurants and newly acquired businesses through a central management organization which we believe provides continuity across our restaurant base and allows for efficiencies of a central management team.
16 |
Table of Contents |
Highlights
During the fourth quarterfirst two quarters of 2021,2022, we completedacquired two restaurants and a 41.2% interest in an operator of six restaurants with the net proceeds from our November 2021 initial public offering of unitsoffering. We expect to continue to consider acquisition opportunities. Our recent acquisitions have allowed us to diversify our operations into new restaurant segments and new geographic regions, which we expect will reduce our dependency on the financial performance of our securities atBurger Time restaurants.
Keegan’s Seafood Grille, which we acquired in March 2022, has served customers in the Clearwater and St. Petersburg, Florida markets for over 35 years. The operation is primarily a publicdine-in restaurant offering pricea variety of $5.00 per unit, each unit comprisingtraditional fresh seafood items for lunch and dinner and a selection of beer and wine.
In May 2022, through our 10Water Street, LLC subsidiary, we acquired the assets and business operations of the iconic Pie In The Sky Coffee Shop and Bakery “PIE,” which is adjacent to the ferry dock in Woods Hole, Massachusetts. The business has operated in the same location for over thirty years, offering a range of breakfast and lunch options, freshly roasted coffee, and branded merchandise serving locals and tourists.
In June 2022, BT Brands acquired approximately 41.2% of the stock of Bagger Dave’s Burger Tavern, Inc., which owns and operates six Bagger Dave’s restaurants, a casual restaurant, and bar concept. Bagger Dave’s provides a warm, inviting, and entertaining atmosphere specializing in locally sourced, never-frozen prime rib recipe burgers, all-natural turkey burgers, hand-cut fries, locally crafted draft beers, milkshakes, salads, black bean turkey chili, pizza, and other items. Bagger Dave’s opened its first restaurant in Berkley, Michigan, in January 2008 and operates four restaurants in Michigan, one share of common stockrestaurant in Ft. Wayne, Indiana, and one warrant to purchase one share of common stock at an exercise price of $5.50 per share. The net proceeds to the Company from the offering, including the exercise of the underwriter's option to purchase additional warrants, were approximately $10.7 million, after deducting underwriting discounts and commissions and payment of estimated offering expenses totaling approximately $1.3 million.location in Centerville, Ohio.
Material Trends and Uncertainties
There are industry trends that maycurrently have an impact on our business. TheseCurrent trends principally relate toinclude difficulties attracting food service workers and rapid inflation in the cost of many input items. Recent trends also include the rapidly changing area of technology and food delivery area.delivery. The major companies in the restaurant industry have rapidly adopted and developed applications for the smartphone and mobile delivery applications, have aggressively expanded drive-through operations, and have developed loyalty programs and database marketing supported by a robust technology platform. We expect these trends to continue as restaurants aggressively compete for customers. Further, the major industry participants have continuedCompetitors likely will continue to strategically discount prices through promotions such as a "dollar menu." We expect these significant trends will continue.aggressive promotions.
The cost of food has increased over the last two years, and we expect to see continued inflationary pressure in the remainder of 2022. Beef costs were stable in 2020, continued to rise in 2021, and since 2020 have recently increased by approximately 13.7%4% per pound. Given the competitive nature of the fast-food burger restaurant industry, in response to recent commodity price increases, we are planning to implement a price increase in the second quarter of 2022. Itit may be difficult to raise menu prices to cover future cost increases. Inincreases fully. During 2020 and early 2021, our Burger Time business experienced a significant increase in business volume contributedcontributing to improved profit margins. Additional margin improvements may have to be achievedmade through operational enhancements, equipment advances, and increased sales volumes to help offset any food cost increases due to the competitive state of the restaurant industry.
Labor is a critical factor in operating our stores. In most areas where we operate our restaurants, there historically has been a shortage of suitable labor, and recently, securing staff has become more challenging. The current labor market has resulted in higher wages as the competition for employees intensifies, not only in the restaurant industry but in practically all retail and service industries. We must develop and retain quality employees. |
The general stateSince March 2020, we have faced the effects of COVID and its variants. COVID infections have adversely affected workforces, customers, economies, and financial markets globally and have disrupted the normal flow of the economy influencesU.S. economy. Our stores have, with only a few exceptions, remained open for drive-through business during the last two years; however, many businesses experienced a disruption of normal operations. More recently, food service businesses, including ours, have faced challenges in attracting and hiring workers. Labor shortages may continue and become more acute as market participants compete to attract employees.
We can’t predict the duration or magnitude of the effects of COVID and the impact on our business or the results of operations. The response to public health matters may influence restaurant customer traffic and 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 may be adversely affected if jurisdictions in which we have restaurants are ordered to close, or we may be forced to implement temporaryby mandatory closures, seek voluntary closures, or impose restrictions on operations. Even if such measures are not implemented, the perceived risk of infection or significant health risk may adversely affect our business.
17 |
Table of Contents |
We continue to monitor public health issues and their impact on our customer base and throughout the country. It is difficult to predict the future in light of many factors, including the spread of new variants of the original coronavirus disease among the U.S. population and the efficacy of existing treatments and vaccines.
Our strategy to acquire additional restaurant properties presents numerous risks and uncertainties to our operations, including our management’s ability to:
· | identify suitable targets; | |
· | complete comprehensive due diligence as to targets, | |
· | integrate a target’s operations with our existing operations, | |
· | retain management and key employees of the target; | |
· | operate new restaurant concepts in new geographic areas outside of our traditional Burger Time platform; | |
· | develop and implement appropriate and effective sales and marketing strategies for our new restaurants individually and our restaurant group as a whole; | |
· | maintain and grow revenue at our new properties; | |
· | identify and retain experienced managerial personnel to effectively administer our operations; | |
· | improve existing, and implement new operational, financial, and management controls; | |
· | install enhanced management information systems; and | |
· | create a corporate brand identifying our restaurants as BT Brands’ properties. |
Our failure to manage any of these aspects of our growth could adversely impact our business and our results of operations.
Future conditions may influence restaurant customer traffic and our ability to adequately staff our restaurants, receive deliveries on a shortagetimely basis or perform functions at the corporate level. Further, such conditions could impact the availability of available workers.the menu items we offer and the ability of suppliers to deliver such products. We also may be adversely affected if jurisdictions impose mandatory closures, seek voluntary closures, or impose restrictions on operations. Even if such measures are not implemented, the perceived risk of infection or significant health risk may adversely affect our business.
Growth Strategy and Outlook
We are seeking to increase value for our shareholders in the food service industry. Our principal strategy is to acquirecomprises acquiring individual and multi-unit restaurant concepts and individual properties at attractive earnings multiples. Though we do not have plansplan to do so, we may under certain circumstances, develop additional Burger Time locations.locations by acquiring and converting existing properties under certain circumstances. Other criticalkey elements of our growth strategy encompassinclude increasing same-store sales and introducing a campaign to boost brand awareness.
Expansion Through Acquisitions
We intend to continue to make strategic and opportunistic acquisitions that provide an entrance into targeted restaurant segments and geographic areas. Restaurant businesses become available for acquisition frequently. Wefrequently, and we believe that we may be able to purchase either individual restaurant properties or multi-unit businesses at prices that provideproviding an attractive return on our investment. Alternatively, weWe may acquire 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 to ensure 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 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. |
18 |
Table of Contents |
Assuming we successfully acquireare successful in acquiring new businesses, we will operate the business or businesses with a shared central management organization. Following the acquisition, we expect to pursue a growth plan to expand the number of locations and 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 near each other, we believe the concentration of operations will provide economic synergies for 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 locations. Conditions that 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 an attractive price in a location that fits within Burger Time's geographic footprint so that we may share service expenses, including advertising costs.
If we elect to open additional Burger Time restaurants, we expect that the development of these restaurants will, based on our experience, require a minimum of six to nine months after opening to achieve the targeted restaurant-level sales and operating margins. When we open a restaurant in new and untested markets, achieving targeted sales may take longer since the local population will not be familiar with our brand. Building brand awareness takes time in a new and untested market. How quickly new restaurants achieve their targeted sales and operating margin depends on many factors, including consumer familiarity with our brand and the availability of experienced managers and other staff. However, every restaurant has a unique opening sales pattern, which is difficult to predict.
Increase Same-Store Sales
Same-store sales growth reflects the change in year-over-year sales for the comparable store base.base and is a benchmark for the performance of our restaurants. We intend to deployuse a multi-faceted same-store sales growth strategy to optimize restaurant performance. We will applyuse techniques proven in the restaurant industry to increase same-store sales at our Burger Time restaurants and our acquired properties and develop new approaches that reflect our corporate character and restaurant composition.sales. We expect to utilize customer feedback and analyze sales data to introduce, test and honeimprove existing and new menu items. In addition, we will investigate usingmay use social media and public relations, and experiential marketing to engage customers. We expect ourOur strategies to increase same-store sales will evolve as we acquire new restaurant concepts in new markets.
Increase Brand Awareness
We appreciate that increasingIncreasing brand awareness is essential to the growth of our Company. We willintend to develop and implement forward-looking branding strategies for Burger Time and any acquired businesses.strategies. We will seek to leverage social media and employ targeted digital advertising to expand the reach of our brands and drive traffic to our stores. In addition, we intend to develop mobile applications that will allow consumers to find restaurants, order online and earn rewards. We expect to deploy internet advertising to match specific menu items targeted to demographic groups. We will deploy cross-over ads with radio and social media interaction. We expect ourmedia. Our branding initiatives towill evolve as we consummate acquisitions ofacquire restaurant concepts that appeal to distinct consumer markets in differing geographic areas.
Our ability to acquire or open new restaurants is predicated onResults of Operations for the availability of capital for such purposes. We cannot be certain that capital will be available to us on acceptable terms, if at all.
First Quarter HighlightsThirteen Weeks Ended July 3, 2022, and the Thirteen Weeks Ended July 4, 2021
On March 2, 2022, we consummatedThe following table sets forth our Condensed Statements of Income and percentages of total revenues for the acquisitionthirteen-week-fiscal periods. Percentages below may not reconcile because of substantially all of the assets of Keegan's Seafood Grille, Inc., an operating restaurant located in Indian Rocks Beach, Florida. We acquired the assets for a purchase price of $1,150,000. The acquired assets have operated as Keegan's Seafood Grille for more than 35 years, primarily serving the Clearwater and St. Petersburg, Florida markets. As part of the purchase, we acquired the "Keegan's Seafood Grille" tradename, and we plan to continue to operate the property under the Keegan's Seafood Grille name.rounding.
|
| 13 weeks ended, July 3, 2022 |
|
| 13 weeks ended, July 4, 2021 |
| ||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||
SALES |
| $ | 3,524,881 |
|
|
| 100.0 | % |
| $ | 2,382,683 |
|
|
| 100.0 | % |
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 1,311,373 |
|
|
| 37.2 |
|
|
| 908,760 |
|
|
| 38.1 |
|
Labor costs |
|
| 1,179,118 |
|
|
| 33.5 |
|
|
| 621,227 |
|
|
| 26.1 |
|
Occupancy costs |
|
| 261.282 |
|
|
| 7.4 |
|
|
| 167,106 |
|
|
| 7.0 |
|
Other operating expenses |
|
| 212,314 |
|
|
| 6.0 |
|
|
| 128.872 |
|
|
| 5.4 |
|
Depreciation and amortization |
|
| 109,286 |
|
|
| 3.1 |
|
|
| 58.558 |
|
|
| 2.5 |
|
General and administrative |
|
| 455,656 |
|
|
| 12.9 |
|
|
| 110,983 |
|
|
| 4.7 |
|
Total costs and expenses |
|
| 3,529,029 |
|
|
| 100.1 |
|
|
| 1,995,506 |
|
|
| 83.8 |
|
Income (loss) from operations |
|
| (4,148 | ) |
|
| (.1 | ) |
|
| 387,177 |
|
|
| 16.2 |
|
INTEREST EXPENSE |
|
| (26,190 | ) |
|
| (.7 | ) |
|
| (89,661 | ) |
|
| (3.8 | ) |
INTEREST AND OTHER INCOME |
|
| 9,473 |
|
|
| .3 |
|
| ‒ |
|
| ‒ |
| ||
UNREALIZED LOSS AND LOSS FROM AFFILIATE |
|
| (94,410 | ) |
|
| (2.7 | ) |
| ‒ |
|
| ‒ |
| ||
INCOME TAX BENEFIT (EXPENSE) |
|
| 23,000 |
|
|
| .6 |
|
|
| (85,000 | ) |
|
| (3.5 | ) |
NET INCOME (LOSS) |
| $ | (92,275 | ) |
|
| (2.6 | )% |
| $ | 212,516 |
|
|
| 8.9 | % |
Net Revenues:
Key Performance Indicators
We use comparableNet sales for the second fiscal quarter of 2022 increased $1,142,198 to $3,524,881 from $2,382,683 in fiscal 2021. The increase during the period resulted from sales from the recently acquired businesses contributing $1,639,588 in revenue. Revenues at the Burger Time locations declined approximately 20.1% as customer purchasing patterns returned to pre-pandemic levels. Burger Time was also adversely impacted by weather and staffing challenges, which resulted in limited hours and store sales metrics as indicators of sales growth to evaluate how our established stores have performed over time. We use comparable guest traffic to determine how established stores have performed over time, excluding growth achieved through menu price and sales mix change. Finally, we use average checks per guest to identify trends in guest preferences andclosures during the effectiveness of menu changes. We believe these performance indicators are useful for investors by providing a consistent comparison of sales results and trends across comparable periods within our core, established store base, unaffected by results of store openings, closings, and other transitional changes.quarter.
Table of Contents |
Results of OperationsRestaurant unit sales for Burger Time for the Thirteen Weeks Ended April 3, 2022, and the Thirteen Weeks Ended April 4, 2021
13 weeks ranged from a low of approximately $139,000 to a high of approximately $272,000. The following table sets forth our Condensed Statements of Operations for the fiscal periods indicated as a percentage of total revenues. Percentages below may not reconcile because of rounding.
|
| 13 Weeks Ended, |
| |||||
|
| April 3, 2022 |
|
| April 4, 2021 |
| ||
SALES |
|
| 100.0 | % |
| 100.0 | % | |
COSTS AND EXPENSES |
|
|
|
|
|
|
| |
Food and paper costs |
|
| 34.8 |
|
|
| 37.7 |
|
Labor costs |
|
| 29.3 |
|
|
| 29.1 |
|
Occupancy costs |
|
| 8.4 |
|
|
| 7.0 |
|
Other operating expenses |
|
| 5.8 |
|
|
| 6.3 |
|
Depreciation and amortization |
|
| 3.3 |
|
|
| 2.8 |
|
General and administrative |
|
| 14.0 |
|
|
| 5.4 |
|
Total costs and expenses |
|
| 95.7 |
|
|
| 88.5 |
|
Income from operations |
|
| 4.3 |
|
|
| 11.5 |
|
INTEREST EXPENSE |
|
| (1.4 | ) |
|
| (2.0 | ) |
INCOME BEFORE TAXES |
|
| 2.9 |
|
|
| 9.5 |
|
PROVISION FOR INCOME TAXES |
|
| (0.9 | ) |
|
| (2.6 | ) |
NET INCOME |
|
| 2.0 | % |
| 6.9 | % |
Net Revenues:
Netaverage sales for the fiscal first quarter of 2022 increased $132,323 or 6.8% to $2,073,195 from $1,940,872 in the first quarter of fiscal 2021. A decline in sales ateach Burger Time locations was attributable principally to the labor issues resulting in some curtailment of restaurant operating hours and poorer weather conditions than in the year-earlier period. These negative effects were offset by the contribution to sales of approximately one-month for Keegan's Seafood Grille, which was acquired on March 2, 2022, and contributed approximately $345,000 in salesunit during the quarter.period was approximately $208,000 in 2022, approximately $29,200 below the same period in 2021.
Costs of Sales - food and paper:
Cost of sales - food and paper for the first quarter of fiscal 2022 period decreased as a percentage of sales declined to 34.8%37.2% of restaurant sales from 37.7%38.1% of restaurant sales in the firstsecond quarter of fiscal 2021. This decrease resulted fromwas the net result of inflationary pressures of certain items, offset by the inclusion of results of PIE which operates at a menu price increase in the second half of 2021significantly lower food and relatively favorable pricing negotiated with the Company's ground beef supplier.labor cost than our Burger Time business.
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 expenses and depreciation and amortization) as a percent of restaurant sales were relatively stable at 79.7%increased to 78.2% of sales in the firstsecond fiscal quarter of 2022 compared to 80.2%from 76.6% in the samesimilar period of fiscal 2021. This increase was due primarily to an increase in sales which favorably impacted both fixedbecause of higher labor and semi-fixedoccupancy cost, including lease costs associated with our two recently acquired locations and the matters discussed in the "Cost“Cost of Sales,” "Labor“Labor Costs,” "Occupancy,” and “Other“Occupancy and Other Operating Cost"Cost” sections below.
Labor Costs:Costs
For the firstsecond quarter of fiscal 2022, labor and benefits cost increased by $42,218 to $607,710, and labor costs as a percentage of sales increased to 29.3%33.5% of restaurant sales from 29.1% of restaurant sales the 26.1%in fiscal 2021 first quarter.2021. The increase in the ratepercentage resulted from an increase in new-hiretighter labor markets leading to higher hourly wage ratescosts offset by leveraging existing staffing levels as sales increased significantly from the previous year. The Company continued to benefit from minimal turnover in its unit restaurant management, which tends to cause unfavorable variations in labor costs.staffing. Payroll costs are semi-variable, meaning that they do not changedecrease proportionally to changesdecreases in revenue.
Occupancy and Other Operating Expenses
For the firstsecond fiscal quarter of 2022, occupancy and other expenses increased by $34,748. As a percentageto 13.4% of sales these costs increased to 14.2% of restaurant sales compared with 13.3% in a similar periodfrom 12.4% in 2021. This increase is primarily the result of winter conditions increasing heatingresults from higher occupancy costs, and snow removal expenses compared to the milder weather a year ago.including lease costs associated with our two new locations.
Depreciation and Amortization Expense:
For the firstsecond fiscal quarter of 2022, depreciation and amortization increased by $14,579 to $69,415 (3.3%$109,286 (3.1% of sales) from $54,836 (2.8%$58,558 (2.5% of sales) in the same period insecond quarter of fiscal of 2021. The company continues to reinvest in its properties to maintainincrease results from depreciation and upgrade items such as point-of-sale equipment and HVAC equipment.amortization associated with our recent acquisitions.
General and Administrative Costs
General and administrative costs increased 176.3% or $185,724by $344,673 from $105,338 (5.4% of sales) in$110,983 to $455,656; the first fiscal quarter of 2022 to $291,062 (14.0% of sales) inincrease is associated with the first quarter of 2021. The increase in general and administrative costs is primarily the result of theCompany’s transition to a public company following the Company's IPO in November 2021. Following2021, including the recent stock offering,costs related to long-term management agreements. Second quarter general and administrative expenses were 12.9% of sales, a significant increase from 4.7% in the Company increased officer compensation over the year-earlier level and increased staff.earlier year.
Income (Loss) from Operations
IncomeThe loss from operations for the first fiscalsecond quarter of fiscal 2022 was $88,921$4,148 compared to a profit from operations of $387,177 in the same period in 2021; the percentage of income from operations as a percentage of $223,495sales declined to negative .1% from 16.0%, reflecting a decline in the 2021 period. The change in income from operations in fiscal 2022 compared to fiscal 2021 was due to the significant increase in Generalprofit margin at Burger Time, higher general and Administrative Expenses following the Company's initial public offeringadministrative expenses and the matters discussed in the "Net Revenues"“Net Revenues” and "Restaurant“Restaurant Operating Costs"Costs” sections above.
Restaurant-level EBITDA:
To supplement the condensed consolidated financial statements, which are prepared and presented according toin 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, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. However, thisThis measure is not 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 theunder GAAP. The reconciliations to operating income set forth below should be carefully evaluated.
20 |
Table of Contents |
We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, and depreciation and amortization.amortization, and impairment charges. General and administrative costsexpenses are excluded as they are generally not specifically identifiable as restaurant-specific costs. Depreciation, amortization, and impairment charges are excluded because they are not ongoing controllable cash expenses and are not related to the health of ongoing operations.
|
| 13 weeks ended, |
| |||||
|
| July 3, 2022 |
|
| July 4, 2021 |
| ||
Revenues |
| $ | 3,524,881 |
|
| $ | 2,382,683 |
|
Reconciliation: |
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| (4,148 | ) |
|
| 387,177 |
|
Depreciation and amortization |
|
| 109,286 |
|
|
| 58,558 |
|
General and administrative, corporate level expenses |
|
| 455,656 |
|
|
| 110,983 |
|
Restaurant-level EBITDA |
| $ | 560,795 |
|
| $ | 556,716 |
|
Restaurant-level EBITDA margin |
|
| 15.9 | % |
|
| 23.4 | % |
Our Results of Operations for the Twenty-Six Weeks Ended July 3, 2022, and the Twenty-Six Weeks Ended July 4, 2021
The following table sets forth our Condensed Statements of Income and percentages of total revenues for the twenty-six-week fiscal periods. Percentages below may not reconcile because of rounding.
|
| 26 weeks ended, July 3, 2022 |
|
| 26 weeks ended, July 4, 2021 |
| ||||||||||
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||
SALES |
| $ | 5,598,076 |
|
|
| 100.0 | % |
| $ | 4,323,555 |
|
|
| 100.0 | % |
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and paper costs |
|
| 2,032,956 |
|
|
| 36.3 |
|
|
| 1,636,053 |
|
|
| 37.8 |
|
Labor costs |
|
| 1,786,828 |
|
|
| 31.9 |
|
|
| 1,186,719 |
|
|
| 27.4 |
|
Occupancy costs |
|
| 435,920 |
|
|
| 7.8 |
|
|
| 261,282 |
|
|
| 6.0 |
|
Other operating expenses |
|
| 332,181 |
|
|
| 5.9 |
|
|
| 303,654 |
|
|
| 7.0 |
|
Depreciation and amortization |
|
| 178,701 |
|
|
| 3.2 |
|
|
| 113,394 |
|
|
| 2.6 |
|
General and administrative |
|
| 746,717 |
|
|
| 13.3 |
|
|
| 220,982 |
|
|
| 5.1 |
|
Total costs and expenses |
|
| 5,513,303 |
|
|
| 98.5 |
|
|
| 3,712,883 |
|
|
| 85.9 |
|
Income from operations |
|
| 84,773 |
|
|
| 1.5 |
|
|
| 610,672 |
|
|
| 14.1 |
|
INTEREST EXPENSE |
|
| (54,461 | ) |
|
| (1.0 | ) |
|
| (128,232 | ) |
|
| (3.0 | ) |
INTEREST AND OTHER INCOME |
|
| 9,473 |
|
|
| .2 |
|
| ‒ |
|
| ‒ |
| ||
UNREALIZED LOSS AND LOSS FROM AFFILIATE |
|
| (94,410 | ) |
|
| (1.7 | ) |
| ‒ |
|
| ‒ |
| ||
INCOME TAX BENEFIT (EXPENSE) |
|
| 5,000 |
|
|
| .1 |
|
|
| (135,000 | ) |
|
| (3.1 | ) |
NET INCOME (LOSS) |
| $ | (49,625 | ) |
|
| (.9 | )% |
| $ | 347,440 |
|
|
| 8.0 | % |
Net Revenues:
Net sales for 26-week period representing the first half of fiscal 2022 increased $1,274,521 or 29.5% to $5,598,076 from $4,323,555 in fiscal 2021. The increase in sales was principally the result of a favorable impact in the 26 weeks of two acquired restaurants which contributed approximately $1,775,247 in sales, offsetting a decline of approximately $500,726 or 11.6% in Burger Time revenues.
Burger Time unit sales for the 26 weeks ranged from a low of approximately $226,000 to a high of approximately $509,000. Average sales for each Burger Time unit were approximately $389,000 in 2022, a decline from approximately $438,200 in the same 26-week period in 2021. The sales decline in the first half of 2022 is the combined result of a return to pre-covid customer purchasing patterns as competitive dining options returned to normal, labor challenges resulting in some contraction of hours, and poorer weather conditions relative to the year-earlier period.
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Costs of Sales - food and paper:
Cost of sales - food and paper for the first half of fiscal 2022 decreased as a percentage of sales to 36.3% from 37.8% of restaurant sales in the same period in 2021. This decrease resulted from a strong performance at our PIE business which operates at lower food and paper costs than our traditional business and Keegan’s location.
Restaurant Operating Costs:
Restaurant operating costs, which are associated with operations, not including general and administrative expenses, and depreciation and amortization, increased as a percentage of restaurant sales to 81.9% of sales in 2021 from 77.0% in fiscal 2021. This increase was due to the increase in sales activity from new locations and its impact, as further discussed in the “Cost of Sales,” “Labor Costs,” and “Occupancy and Other Operating Cost” sections below.
Labor Costs:
For the first half of fiscal 2022, labor and benefits cost increased to 31.9% of restaurant sales from 27.4% in the fiscal 2021 period. Shortages in staffing levels combined with higher hourly wage rates at all locations increased the overall labor percentage. The hiring markets have become more challenging in terms of filling open positions. Payroll costs are semi-variable, meaning they do not decrease proportionally to decreases in revenue. Thus, they increase as a percentage of restaurant sales when there is a decrease.
Occupancy and Other Operating Expenses:
For the first 26 weeks of fiscal 2022, occupancy and other expenses increased to 13.7% of sales from 13.0% in 2021. Many of these costs are fixed, and the percentage reflects lower maintenance costs offset by higher lease occupancy costs at our new locations.
Depreciation and Amortization Expense:
Depreciation and amortization expenses in the first half of fiscal 2022 increased by $65,307 to $178,701 (3.2% of sales) from $113,394 (2.6% of sales) in the first half of fiscal 2021 and are the result of the purchase of two new restaurants and capital additions at several of our locations.
General and Administrative Costs:
General and administrative costs increased 238.4%, or $526,735 to $746,717, from $220,982 (5.1% of sales) in the first half of fiscal 2021. The increase results from the transition to a public reporting company, stock-based compensation costs, and the expense associated with long-term management employment agreements.
Income from Operations:
Operating income was $84,773 in the first half of fiscal 2022 compared to $610,672 in the first half of fiscal 2021. The change in income from operations in the first half of fiscal 2022 compared to fiscal 2021 was due primarily to the increase in general and administrative expenses, which included higher costs associated with the transition to a public company near the end of 2021, including the “Net Revenues” and “Restaurant Operating Costs” sections above.
Restaurant-level EBITDA:
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use restaurant-level EBITDA, which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not 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, calculated under GAAP. The reconciliations to operating income set forth below should be carefully evaluated.
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We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization, and impairment charges. General and administrative expenses are excluded as they are generally not specifically identifiable as restaurant-specific costs. Depreciation, amortization, and impairment charges are excluded because they are not ongoing controllable cash expenses and are not related to the health of ongoing operations.
|
| 13-Week Period |
| |||||
|
| April 3, 2022 |
|
| April 4, 2021 |
| ||
Revenues |
| $ | 2,073,195 |
|
| $ | 1,940,872 |
|
Reconciliation: |
|
|
|
|
|
|
|
|
Income from operations |
|
| 95,667 |
|
|
| 223,495 |
|
Depreciation and amortization |
|
| 69,415 |
|
|
| 54.836 |
|
General and administrative, corporate-level expenses |
|
| 284,315 |
|
|
| 105,338 |
|
Restaurant-level EBITDA |
|
| 449,397 |
|
|
| 383,689 |
|
Restaurant-level EBITDA margin |
|
| 21.6 | % |
|
| 19.8 | % |
|
| 26 weeks ended, |
| |||||
|
| July 3, 2022 |
|
| July 3, 2021 |
| ||
Revenues |
| $ | 5,598,076 |
|
| $ | 4,323,555 |
|
Reconciliation: |
|
|
|
|
|
|
|
|
Income from operations |
|
| 84,773 |
|
|
| 653,044 |
|
Depreciation and amortization |
|
| 178,701 |
|
|
| 113,394 |
|
General and administrative, corporate level expenses |
|
| 746,717 |
|
|
| 220,982 |
|
Restaurant-level EBITDA |
| $ | 1,010,191 |
|
| $ | 987,420 |
|
Restaurant-level EBITDA margin |
|
| 18.0 | % |
|
| 22.8 | % |
Liquidity and Capital Resources
Initially, the public response to COVID positively impacted our sales and liquidity. More recently, as customer activities have returned to normal patterns, our Burger Time business has experienced a decline from the peak level we experienced during the height of COVID restrictions. For the 1326 weeks ended AprilJuly 3, 2022, the Company earned an after-tax profitoperations reflected a net loss of $42,650. Principally, as a result of the Company's public offering of common stock and warrants in November 2021, on April$49,625. On July 3, 2022, the Companywe had $11,073,645$8,295,952 in cash and working capital of $9,905,672.$7.7 million, a decrease of $3.9 million from January 2, 2022, resulting from the purchase of two restaurants for $2.3 million and investment of $1.3 million in shares of Bagger Dave’s.
In May 2020, the Company received pandemic-related loans totaling $487,900; $460,400 was borrowed underfuture, COVID and its variants may continue to impact the Small Business Administration's Paycheck Protection Program ("PPP"). The Company accounted forUnited States economy. It is difficult to predict the loan's proceeds as a government grant under International Accounting Standard 20 ("IAS 20"), Accounting for Government Grants, and Disclosure of Government Assistance. Under IAS 20, the loan is initially recorded as deferred incomeultimate impact on the balance sheet. Forgiveness income is recognized systematically overUnited States economy in general, the qualifying expenses incurred whenimpact on the Company determines that the forgiveness is reasonably assured. The loans were forgiven in 2021. As a resultquick service drive-through segment of the forgiveness of the PPP advances, the loan forgiveness was reflected as "Other Income" in 2020. Also, in May 2020, the Company borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program. Under the loan terms, the Company will seek loan forgiveness in 2022.food service industry, and our operating results and financial condition.
Our primary requirements for liquidity are to fund our working capital needs, capital expenditures, and general corporate needs, as well as to invest in or acquire businesses that are synergistic with our business.businesses. Our operations do not require significant working capital, and, like many restaurant companies, we maygenerally operate with negative working capital. We anticipate that working capital deficits may be incurred in the future and possibly increase. Our primary sources of liquidity and cash flowsflow sources are operating cash flows and cash on hand. We use this to service debt, maintain our stores to operate efficiently, and 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 purchase or within a few days from our credit card processor. Generally,processor; generally, payments to our vendors are not due for thirty days.
Summary of Cash Flows
Cash Flows Provided by Operating Activities
Primarily as a result of a positive one-month contribution from the operations Keegan's in March 2022, we generated positiveOperating cash flow in the 13 weeks ending April 3, 2022.first half of 2022 was $498,068. The winter months have historically been seasonally the slowest part of the Company's business.cash flow from operations was impacted positively by our recent acquisitions. We expect operating cash flow in future periods to be significantly impacted by our recent acquisitions.
Cash Flows Used in Investing Activities
InDuring fiscal 2022, the Company haswe have focused on identifying potential acquisition opportunities, including its purchase of Keegans on March 2, 2022.acquisitions in the food service and related industries, purchasing two operating restaurants, and purchasing a 41.2% interest in a publicly traded casual dining business.
Cash Flows Used in Financing Activities
A significant portion of the Company'sour cash flow used in financing activities is allocated to service the Company'sour debt.
Contractual Obligations
As of AprilJuly 3, 2022, we had $3$4.1 million in contractual obligations relating principally to amounts due under mortgages on the real property on whichwhere stores are situated.situated, including $2.9 million in capitalized lease obligations related to our recent acquisitions. Our monthly required payment is approximately $32,000. $39,000. In the second quarter of fiscal 2021, we refinanced most of our outstanding mortgage debt with a new lender lowering our nominal interest cost from 4.75% to 3.45% fixed for the next ten years.
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Qualitative and Quantitative Disclosure about Market Risk
Commodity Price Risk
We are subject to volatility in food costs due to 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. To manage these risks,Generally, we do not enter intohave pricing agreements with our suppliers.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. A ten percent increase in the cost of beef would result in approximately $175,000 of additional food costs for the Company annually.
Seasonality and Inflation
Many of our restaurants experience significant seasonal fluctuations in activity and revenue.
Seasonal factors and the timing of holidays cause our revenue at our Burger Time locations to fluctuate from quarter to quarter. Our revenue per Burger Time 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. PIE benefits from robust tourism on Cape Cod in the late spring through early fall months. The results of operations during the second and third fiscal quarters at this location will be materially more significant than during the first and fourth fiscal quarters.
Management believes that inflationKeegan’s will benefit from additional customer traffic in Florida during the colder months in the northern part of the country; as tourists and seasonal residents seek to escape to warmer climates, daily customer counts increase at Keegan’s.
Inflation has had a material effect on income in recent periods. A continuation of current cost trends inour business as food, labor, and other operating costs couldhave adversely affectaffected operations. Generally, we have been able to increase menu prices or modify our operating procedures to offset increases in operating costs substantially. As inflation continues, we may not be able to raise prices to keep pace with increasing costs, particularly when compared to larger competitors that may be able to manage the Company'srisk of rising prices better.
Inflation has had a material effect on our business as food, labor, and other operating costs have adversely affected operations. The CompanyHowever, we generally hashave been able to increase menu prices or modify its operating procedures to 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 margin improvements to offset these or additional construction cost increases. Construction cost increases could have an adverse effect on our business and operations, particularly for new restaurant development.substantially.
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 that changes in the regulatory environment may have on our Company.
Off-Balance Sheet Arrangements
WeThe Company did not have any off-balance sheet arrangements during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Recent Accounting Pronouncements
There has been no impact onto our financial statements and our results of operations and financial condition as the result of the adoption of Recent Accounting Pronouncements, see "Part“Part I, Item 1, Note 1. Summary of Significant Accounting Policies"Policies” of the Notes to Condensed Consolidated Financial Statements included in this quarterly report. The Company follows ASC 842, covering accounting for leases, and has recorded Right to Use Assets and related lease liabilities for the lease contracts.
Critical Accounting Policies and Estimates
Our discussion and analysis of operating results and financial conditionscondition are based onupon our condensed consolidated financial statements. Under GAAP,The preparation of our condensed consolidated financial statements requirein 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 experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
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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'smanagement’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates. Our significant accounting policies are disclosed in our annual report Form 10-K for the fiscal year ended January 2, 2022.
Jumpstart Our Business Startups Act of 2012
We qualify as an "emerging“emerging growth company"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 to complyfor complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of specificcertain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period. As a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards isare required for other public companies.companies are adopted.
Subject to certain conditions outlinedset forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may take advantage of these exemptions until we are no longer an emerging growth company. We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, andas amended (the “Exchange Act”). We are not required to provide the information under this item.
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ITEM 4. CONTROLS AND PROCEDURESPROCEDURES.
Disclosure Controls and Procedures
(1) Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports we filed under the Securities Exchange Act is recorded, processed, summarized, and reported within the periods specified by the SEC'sSEC’s rules and forms. Disclosure Controlscontrols are also designed to ensure that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of AprilJuly 3, 2022, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures underpursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation and the material weakness in our internal control over financial reporting as disclosed in the Company’s Form 10-K for the fiscal year ended January 3, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of AprilJuly 3, 2022, our disclosure controls and procedures were not effective at a reasonable assurance aslevel in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules, regulations, and forms of the endSEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer, Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(2) Changes in Internal Control over Financial Reporting
The Company disclosed a material weakness for lack of the period covered by this report because we lack the necessary corporate accounting resources to maintain adequate segregation of duties. We didduties and not performperforming an effectiveadequate risk assessment or monitoron monitoring of internal controls over financial reporting. Management is developing and implementing a series of accounting systems and procedure changes and internal controls intended to provide adequate controls over financial reporting.
Changesreporting in internal control over financial reporting
There haveits Form 10-K for the fiscal year ended January 3, 2022. While we are addressing these deficiencies, there has been no significant changeschange in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting. As a result of recent restaurant acquisitions, we are integrating our controls and procedures into the acquired businesses. We will include the internal controls for the acquired businesses in our assessment of the effectiveness of our internal controls over financial reporting as of the end of our current fiscal year. Other than the recent acquisitions, during the period covered by this report, there were no changes in the Company’s internal controls over financial reporting which materially affected or are reasonably expected to impact our internal financial reporting controls.
Table of Contents |
PART II—II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 1A. RISK FACTORS
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
SinceUnregistered Sales of Equity Securities
On February 9, 2022, the independent members of the Board of Directors and the Compensation Committee of the board of Directors approved a grant of 250,000 shares of common stock to each of Gary Copperud and Kenneth Brimmer, the Company’s chief executive officer and chief financial officer, respectively, if, so long as the Company’s publicly traded warrants are outstanding, the Company’s common stock trades at $8.50 per share for 20 consecutive trading days. Final approval of the awards is contingent upon shareholder approval of an increase in the number of shares available for grant under the 2019 Incentive Plan, which is expected to be proposed at the next annual meeting of shareholders. The award of the shares is tied directly to the price at which the common stock purchase warrants issued in the Company’s initial public offering completed in November 2021 are redeemable by the Company. The warrants initially are exercisable at $5.50 per share (subject to adjustment under certain circumstances). The Company expects that if and when the warrants become redeemable, holders will exercise their warrants, and the Company will receive additional capital to fund acquisitions and growth.
Other than as set forth above, since the date on which the Company filed its annual report on Form 10-K and through the date of this quarterly report, the Companywe did not sell any securities.
Use of Proceeds
Since the closing of the Company’s initial public offering in November 2021, the Company has used the proceeds received from the sale of securities to acquire (i) the restaurant assets of Keegan’s Seafood Grille ($1,150,000) and Pie in the Sky Bakery and Coffee Shop ($1,160,000) and (ii) a 41.2% of the outstanding shares of common stock of Bagger Dave’s ($1,260,000), all as more fully described under Management’s Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
Table of Contents |
ITEM 6. EXHIBITS.
Exhibit | Description | ||
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101.INS |
| 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 | |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB |
| Inline XBRL Taxonomy Extension | |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BT BRANDS, INC. | |||
Date: | By: | /s/ Kenneth Brimmer | |
| Name: | Kenneth Brimmer | |
Title: | Chief Operating Officer and Principal Financial Officer | ||
|