UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: April 3,

For the quarterly period ended: October 2, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to 

For the transition period from ________ to _________ 

 

Commission File Number: 333-233233

btbd_10qimg1.jpgbtbd_10qimg7.jpg

BT BRANDS, INC.

 (Exact(Exact name of registrant as specified in its charter)

 

Wyoming

 

90-149576491-1495764

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S.IRS Employer

Identification No.)

 

 

 

405 Main Avenue West, Suite 2D,

West Fargo, NDNorth Dakota

58078

(Address of principal executive offices)

 

(Zip Code)

(307) 291-9885

(307) 223-1663

(Registrant's telephone number, including area code)

 

NONE

(Former name former address and former fiscal year if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange

on which registered

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 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 accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated Filerfiler

Smaller reporting company

 

 

Emerging Growth Companygrowth company

 

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes     ☒ No

 

At May 16,November 14, 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"). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as "believes," "projects," "expects," "may," "estimates," "should," "plans," "targets," "intends," "could," "would," "anticipates," "potential," "confident," "optimistic" or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations, and future plans. Forward-looking statements can also be identified by the fact these statements do not relate strictly to historical or current matters. Rather, forward-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 to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. You should evaluate all forward-looking statements made in this report in the context of theCertain factors that couldmay cause outcomesresults to differ materially from those anticipated by the forward-looking statements in this quarterly 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 future be, imposed in response to the pandemic which potentially could have an impact on discretionary consumer spending and (2) those discussed and described in our expectations. These factors include, but2021 annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 17, 2022. Many of these risks and uncertainties are not limited to:beyond our ability to control or predict; in many cases, the risks and uncertainties could cause 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.

·

capital requirements and the availability of capital to fund our growth and to service our existing bank debt;

·

difficulties executing our growth strategy, including completing profitable acquisitions;

·

our anticipated use of the net proceeds from this offering;

·

economic uncertainties and business interruptions resulting from the coronavirus global pandemic and its aftermath;

·

following the global pandemic, it will be difficult for us to maintain recent sales gains, and we will likely experience a decline in comparable-store sales;

·

all risks of acquiring an existing restaurant business, including identifying a suitable target, completing comprehensive due diligence, the impact on our financial condition of the debt we may incur in acquiring the target, and the ability to integrate the target's operations with our existing operations, our ability to retain management and key employees of the target, among other factors attendant to acquisitions;

·

difficulties in increasing restaurant revenue and comparable restaurant sales;

·

challenges related to hiring and retaining store employees at competitive wage rates;

·

our failure to prevent food safety and foodborne illness incidents;

·

shortages or interruptions in the supply or delivery of food products;

·

our dependence on a small number of suppliers and a single distribution company;

·

negative publicity relating to any one of our restaurants;

·

competition from other restaurant chains with significantly greater resources than we have;

·

changes in consumer tastes and nutritional and dietary trends;

·

our inability to manage our growth;

·

our inability to maintain an adequate level of cash flow, or access to capital, to meet growth expectations;

·

changes in management, loss of key personnel, or an inability to attract, hire, integrate and retain skilled personnel;

·

labor shortages and increased labor costs;

·

our vulnerability to increased food, commodity, and energy costs;

·

the impact of governmental laws and regulation;

·

failure to obtain and maintain required licenses and permits to comply with food control regulations;

·

changes in economic conditions and adverse weather and other unforeseen conditions, especially in the north-central United States where most of our restaurants currently are located;

·

protecting our intellectual property or breaches of security of confidential information.

 

 
2

Table of Contents

     

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 regarding those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.PART I — FINANCIAL INFORMATION

 

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q, and 8-K, our Schedule 14A, our press releases and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable, any or all of the forward-looking statements may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those 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.ITEM 1. FINANCIAL 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 reports filed with the Securities and Exchange Commission.TABLE OF CONTENTS

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

17

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

27

ITEM 4.

CONTROLS AND PROCEDURES.

27

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

28

ITEM 1A.

RISK FACTORS

28

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

28

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

28

ITEM 4.

MINE SAFETY DISCLOSURES

28

ITEM 5.

OTHER INFORMATION

28

ITEM 6.

EXHIBITS.

29

SIGNATURES

30

     

 
3

Table of Contents

 

TABLE OF CONTENTSBT BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

  

PART I— FINANCIAL INFORMATION.

 

 

October 2, 2022(Unaudited)

 

 

January 2, 2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$7,165,704

 

 

$12,385,632

 

Marketable securities

 

 

653,399

 

 

 

-

 

Receivables

 

 

57,603

 

 

 

72,251

 

Inventory

 

 

150,814

 

 

 

79,510

 

Prepaid expenses and other current assets

 

 

50,375

 

 

 

27,186

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

8,077,895

 

 

 

12,564,579

 

 

 

 

 

 

 

 

 

 

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

 

 

3,541,493

 

 

 

1,592,338

 

OPERATING LEASES RIGHT-OF-USE ASSETS

 

 

1,562,672

 

 

 

-

 

INVESTMENTS

 

 

1,428,187

 

 

 

75,000

 

GOODWILL

 

 

488,431

 

 

 

-

 

INTANGIBLE ASSETS

 

 

545,500

 

 

 

-

 

OTHER ASSETS, net

 

 

280,412

 

 

 

273,810

 

 

 

 

 

 

 

 

 

 

Total assets

 

$15,924,591

 

 

$14,505,727

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$354,486

 

 

$291,973

 

Current maturities of long-term debt

 

 

169,504

 

 

 

169,908

 

Current operating lease obligations

 

 

217,744

 

 

 

-

 

Accrued expenses

 

 

490,627

 

 

 

254,341

 

Income taxes payable

 

 

8,000

 

 

 

209,088

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

1,240,361

 

 

 

925,310

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

2,698,030

 

 

 

2,833,064

 

NONCURRENT LEASE OBLIGATIONS

 

 

1,353,702

 

 

 

-

 

DEFERRED INCOME TAXES

 

 

51,510

 

 

 

119,000

 

Total liabilities

 

 

5,343,603

 

 

 

3,877,374

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 2,000,000 shares authorized, no shares outstanding at October 2, 2022 and January 2, 2022

 

 

-

 

 

 

-

 

Common stock, $.002 par value, 50,000,000 authorized, 6,461,118 shares issued and outstanding at October 2, 2022 and 6,447,506 issued and outstanding at January 2, 2022

 

 

12,922

 

 

 

12,895

 

Additional paid-in capital

 

 

11,392,835

 

 

 

11,215,696

 

Accumulated deficit

 

 

(824,769)

 

 

(600,238)

 

 

 

 

 

 

 

 

 

Total shareholders' equity

 

 

10,580,988

 

 

 

10,628,353

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$15,924,591

 

 

$14,505,727

 

See Notes to Condensed Consolidated Financial Statements

5

ITEM 1.

FINANCIAL STATEMENTS.

5

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

16

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 23

ITEM 4.

CONTROLS AND PROCEDURES.

 23

PART II—OTHER INFORMATION.

 24

ITEM 1.

LEGAL PROCEEDINGS.

 24

ITEM 1A.

RISK FACTORS.

 24

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 24

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

 24

ITEM 4.

MINE SAFETY DISCLOSURES.

 24

ITEM 5.

OTHER INFORMATION.

 24

ITEM 6.

EXHIBITS.

 25

SIGNATURES.

26

 

 
4

Table of Contents

 

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BT BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

April 3,

2022

 

 

January 2,

 2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$11,073,645

 

 

$12,385,632

 

Maketable securities

 

 

254,100

 

 

 

0

 

Receivables

 

 

15,830

 

 

 

72,251

 

Inventory

 

 

97,850

 

 

 

79,510

 

Prepaid expenses and other current assets

 

 

51,110

 

 

 

27,186

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

39 Weeks Ended

 

 

39 Weeks Ended,

 

 

13 Weeks Ended,

 

 

13 Weeks Ended,

 

 

 

October 2, 2022

 

 

October 3, 2021

 

 

October 2, 2022

 

 

October 3, 2021

 

SALES

 

$9,621,996

 

 

$6,604,554

 

 

$4,023,920

 

 

$2,280,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper costs

 

 

3,637,814

 

 

 

2,580,224

 

 

 

1,604,858

 

 

 

944,171

 

Labor costs

 

 

3,122,867

 

 

 

1,794,499

 

 

 

1,336,039

 

 

 

607,780

 

Occupancy costs

 

 

803,792

 

 

 

436,196

 

 

 

367,872

 

 

 

132,542

 

Other operating expenses

 

 

577,035

 

 

 

355,024

 

 

 

248,383

 

 

 

102,943

 

Depreciation and amortization expenses

 

 

351,084

 

 

 

173,799

 

 

 

168,855

 

 

 

60,405

 

General and administrative expenses

 

 

1,035,639

 

 

 

295,397

 

 

 

288,921

 

 

 

74,415

 

Total costs and expenses

 

 

9,528,231

 

 

 

5,635,139

 

 

 

4,014,929

 

 

 

1,922,256

 

Income from operations

 

 

93,765

 

 

 

969,415

 

 

 

8,991

 

 

 

358,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNREALIZED LOSS ON MARKETABLE SECURITIES

 

 

(155,220)

 

 

-

 

 

 

(74,982)

 

 

-

 

INTEREST AND OTHER INCOME

 

 

55,836

 

 

 

-

 

 

 

46,364

 

 

 

-

 

INTEREST EXPENSE

 

 

(88,099)

 

 

(161,148)

 

 

(33,638)

 

 

(32,916)

EQUITY IN NET LOSS OF AFFILIATE

 

 

(135,813)

 

 

-

 

 

 

(121,641)

 

 

-

 

INCOME (LOSS) BEFORE TAXES

 

 

(229,531)

 

 

808,267

 

 

 

(174,906)

 

 

325,827

 

INCOME TAX (EXPENSE) BENEFIT

 

 

5,000

 

 

 

(225,000)

 

 

-

 

 

 

(90,000)

NET INCOME (LOSS)

 

$(224,531)

 

$583,267

 

 

$(174,906)

 

$235,827

 

NET INCOME (LOSS) PER COMMON SHARE - Basic and Diluted

 

$(0.03)

 

$0.14

 

 

$(0.04)

 

$0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted

 

 

6,459,223

 

 

 

4,047,506

 

 

 

6,461,118

 

 

 

4,047,506

 

 

See Notes to Consolidated Condensed Consolidated Financial Statements

 

 
5

Table of Contents

 

BT BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

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

 

 

 

39 Weeks ended,

 

 

 

October 2, 2022

 

 

October 3, 2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net Income (Loss)

 

$(224,531)

 

$583,267

 

Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 

 

 

 

provided by operating activities-

 

 

 

 

 

 

 

 

Depreciation and amortization of franchise cost

 

 

306,584

 

 

 

173,799

 

Amortization of intangible assets

 

 

44,500

 

 

 

-

 

Amortization of debt issuance costs included in interest expense

 

 

4,050

 

 

 

55,555

 

Deferred taxes

 

 

(67,490)

 

 

58,000

 

Stock-based compensation

 

 

102,300

 

 

 

-

 

Unrealized loss on marketable securities

 

 

155,220

 

 

 

-

 

Loan forgiveness

 

 

(13,750

)

 

 

-

 

Loss on equity method investment

 

 

135,813

 

 

 

-

 

Changes in operating assets and liabilities, net of acquisitions -

 

 

 

 

 

 

 

 

Receivables

 

 

14,648

 

 

 

(12,721)

Inventory

 

 

(15,755)

 

 

(8,867)

Prepaid expenses and other current assets

 

 

(23,189)

 

 

(29,195)

Accounts payable

 

 

62,512

 

 

 

148,520

 

Accrued expenses

 

 

204,680

 

 

 

(116,136)

Income taxes payable

 

 

(201,088)

 

 

79,110

 

Net cash provided by operating activities

 

 

484,504

 

 

 

931,332

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Acquisition of net assets of Keegan's Seafood Grille

 

 

(1,150,000)

 

 

-

 

Acquisition of net assets of Pie In The Sky Coffee and Bakery

 

 

(1,159,600)

 

 

-

 

Acquisition of net assets of Village Bier Garten

 

 

(690,000)

 

 

-

 

Investment in Bagger Dave's Burger Tavern, Inc.

 

 

(1,260,000)

 

 

-

 

Purchase of property and equipment

 

 

(349,739)

 

 

(85,821)

Investment in related company

 

 

(229,000)

 

 

-

 

Purchase of marketable securities

 

 

(808,619)

 

 

-

 

Other assets

 

 

(6,602)

 

 

-

 

Net cash used in investing activities

 

 

(5,653,560)

 

 

(85,821)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

-

 

 

 

3,107,100

 

Principal payment on long-term debt

 

 

(125,738

 

 

(3,113,521)

Proceeds from exercise of common stock warrants

 

 

74,866

 

 

 

-

 

Payment of debt issuance costs

 

 

-

 

 

 

(49,699)

Payment of deferred offering costs

 

 

-

 

 

 

(31,823)

Net cash used in financing activities

 

 

(50,872

 

 

(87,943)

 

 

 

 

 

 

 

 

 

CHANGE IN CASH

 

 

(5,219,928)

 

 

757,568

 

 

 

 

 

 

 

 

 

 

CASH, BEGINNING OF PERIOD

 

 

12,385,632

 

 

 

1,321,244

 

 

 

 

 

 

 

 

-

 

CASH, END OF PERIOD

 

$7,165,704

 

 

$2,078,812

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

 

 

Cash paid for interest

 

$84,049

 

 

$127,800

 

Cash paid for income taxes

 

$209,088

 

 

$88,006

 

 

See Notes to Consolidated Condensed Consolidated Financial Statements

 

 
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BT BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

(Deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 3, 2021

 

 

4,047,502

 

 

$8,095

 

 

$497,671

 

 

$(1,208,089)

 

$(702,323)

Net income

 

 

-

 

 

 

0

 

 

 

0

 

 

 

134,924

 

 

 

134,924

 

Balances, April 4, 2021

 

 

4,047,502

 

 

 

8,095

 

 

 

497,671

 

 

 

(1,073,165)

 

 

(567,399)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

33,500

 

 

 

0

 

 

 

33,500

 

Exercise of common stock warrants

 

 

13,612

 

 

 

27

 

 

 

74,839

 

 

 

0

 

 

 

74,866

 

Net income

 

 

-

 

 

 

0

 

 

 

0

 

 

 

42,650

 

 

 

42,650

 

Balances, April 3, 2022

 

 

6,461,118

 

 

 

12,922

 

 

 

11,324,035

 

 

 

(557,588)

 

 

10,779,369

 

See Notes to Condensed Consolidated Financial Statements

For the 39-week periods-

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 2, 2022

 

 

6,447,506

 

 

$12,895

 

 

$11,215,696

 

 

$(600,238)

 

$10,628,353

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

102,300

 

 

 

-

 

 

 

102,300

 

Shares issued in exercise of warrants

 

 

13,612

 

 

 

27

 

 

 

74,839

 

 

 

-

 

 

 

74,866

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(224,531)

 

 

(224,531)

Balances, October 2, 2022

 

 

6,461,118

 

 

$12,922

 

 

$11,392,835

 

 

$(824,769)

 

$10,580,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 3, 2021

 

 

4,047,502

 

 

$8,095

 

 

$497,671

 

 

$(1,208,089)

 

$(702,323)

Shares issued for fractional holding

 

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

583,267

 

 

 

583,267

 

Balances, October 3, 2021

 

 

4,047,506

 

 

$8,095

 

 

$497,671

 

 

$(624,822)

 

$(119,056)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 13-week periods-

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

(Deficit)

 

 

Total

 

Balances, July 3, 2022

 

 

6,461,118

 

 

$12,922

 

 

$11,363,935

 

 

$(649,863)

 

$10,726,994

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

28,900

 

 

 

-

 

 

 

28,900

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(174,906)

 

 

(174,906)

Balances, October 2, 2022

 

 

6,461,118

 

 

$12,922

 

 

$11,392,835

 

 

$(824,769)

 

$10,580,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

(Deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, July 4, 2021

 

 

4,047,506

 

 

$8,095

 

 

$497,671

 

 

$(860,649)

 

$(354,883)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

235,827

 

 

 

235,827

 

Balances, October 3, 2021

 

 

4,047,506

 

 

$8,095

 

 

$497,671

 

 

$(624,822)

 

$(119,056)

 

 
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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    

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BT BRANDS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

  

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of BT Brands, Inc., and its subsidiaries (the "Company," "we," "our," "us," "BT Brands," or "BT Brands""BT") and have been prepared in accordance with the U.S.US generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”("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 endedending January 2, 2022. In our opinion, all adjustments, which are normalregular and recurring in nature,adjustments necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

 

The accompanying Condensed Consolidated Balance Sheet as of April 3,October 2, 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 endedending 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 Companyit acquired 100% of BTND, LLC.LLC

 

Business

 

As of April 3,October 2, 2022, weBT Brands owned and operated eleventhirteen restaurants, including nine Burger Time fast-food restaurants onein the North Central region of the United States, a Dairy Queen fast-food restaurant, andfranchised location in suburban Minneapolis, Minnesota, collectively ("BTND"). Following the end of the third quarter on November 6, 2022, the Burger Time in West St. Paul, Minnesota was permanently closed. The Company is considering alternate uses for the site. We own Keegan's Seafood Grille ("Keegan's"), a dine-in restaurant located in Florida. Our fast-food restaurants are allFlorida, Pie In The Sky Coffee and Bakery ("PIE"), a casual dining coffee shop bakery located in Woods Hole, Massachusetts, and the North Central region of the United States.Village Bier Garten, a German-themed restaurant in Cocoa, Florida. 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 Queena proscribed 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. PIE features an array of fresh baked goods, freshly made sandwiches, and our locally roasted coffee. The Village Bier Garten is a full-service restaurant and bar featuring a German-themed menu, specialty imported European beers, and regular entertainment. 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 purchased 11,095,085 common shares representing 41.2% of Bagger Dave's Burger Tavern, Inc. ("Bagger Dave's"). We acquired the shares from its 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.

8

Table of Contents

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.agreement requires.

 

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 weeksa 52-week year ending January 1, 2023.2023, and fiscal 2021 was a 52-week year ending January 2, 2022.

9

Table of Contents

 

Cash

 

Cash and cash flows are reported net of outstanding checks and include amounts on deposit at banks and

Our bank deposits in transit. At times, the bank depositsoften exceed the amount insured by the Federal Deposit Insurance Corporation. The Company also maintainsIn addition, we maintain cash deposits in brokerage in excess ofaccounts, including money market funds above the insured amount. The Company believesWe do not believe there is not a significant risk related to 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 the Companywe can access at the measurement date.

 

 

 

 

·

Level 2 inputs are inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the entire term of the asset or liability.

 

 

 

 

·

Level 3 Inputsinputs are unobservable inputs for the asset or liability.

 

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to fair value measurement in its entirety.

 

The carrying values of cash, receivables, accounts payable, and other financial working capital items approximate fair value due to the short maturity nature of these instruments.  

 

Equity investmentsInvestments in marketable equity securities are carried at fair value. At April 3,On October 2, 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 securityexchange-listed equity securities with a historical cost of $260,845. This investment is$808,619. These investments are reflected in the accompanying financial statements at April 3,on October 2, 2022, at the level-one fair value quoted in an active market of $254,100.  $653,399.

9

Table of Contents

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.

 

The Company reviewsWe 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, goodwill is not amortized. The CompanyWe periodically assessesassess goodwill for impairment. Management has estimatedimpairment and have determined there is no goodwill impairment of goodwill at April 3, 2022,October 2, 2022. 

 

10

Intangible Assets

Intangible assets with estimated finite lives result from business acquisitions and include the allocated cost of trademarks, tradenames, a covenant not to compete, websites, and social media accounts. The costs of purchased intangible assets are recorded at the estimated value and are amortized over 4 to 20 years.

Table of Contents

 

Assets Held for Sale

 

As of April 3,October 2, 2022, a property in the St. Louis area, which has a carrying value of $0, and a property in Richmond, Indiana, are held for sale. The Company believesWe believe the Richmond property will be sold at or above its current-carrying cost. The remaining book value of $258,751 is included in Other Assets in the current-carrying cost of assets held for sale.accompanying balance sheet.

 

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 April 3,October 2, 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.

10

Table of Contents

 

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.

Other Assets

Other assets include intangible assets that are the allocated fair value of trademarks and other assets purchased in the acquisition of Keegan's and the acquired Dairy Queen franchise. Where appropriate, the cost of intangible assets is amortized over the estimated useful life.

 

NOTE 2 – ACQUISITIONACQUISITIONS

 

Restaurant Acquisition - Keegan's

 

On March 2, 2022, the Company, through its 1519BT, LLC subsidiary ("1519BT"),we purchased the net assets of Keegan’s Seafood Grille,Keegan's, 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 that Keegan's has operated inoccupied for more than 35 years. The CompanyWe acquired the Keegan's tradename as part of the purchase and will continue to operate under the business as Keegan's Seafood Grille name.Grille. The purchase price was approximately $1.150$1.15 million, paid in cash at closing.

 

The acquisition of Keegan's acquisition was accounted for using the acquisition method of accounting following ASC 805 "Business Combinations." Accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired were recorded at their estimated fair values based on information available as of April 3, 2022.values. The Company recorded provisional amounts for the acquired assets including goodwill as of April 3, 2022 and will complete the acquisition accounting once it finalizes its valuation analysis.

 

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

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

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

 

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Restaurant Acquisition – Pie In the Sky Coffee and Bakery

On May 11, 2022, we 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 the closing date. We recorded provisional amounts as of the purchase date and will complete the acquisition accounting once we finalize the valuation analysis.

As a result of the Keegan’sPIE acquisition, the Companywe provisionally recorded $200,000$284,220 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.

 

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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

 

 

 

 

Liabilities assumed:

 

 

 

Gift card liability

 

 

13,049

 

Furniture and fixtures

 

125,000

 

Trademark, website, and other intangibles

 

50,000

 

Non-compete agreement

 

 

300,000

 

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 3Restaurant Acquisition - PROPERTY AND EQUIPMENTVillage Bier Garten Restaurant

 

Property and equipment consistedOn August 4, 2022, we completed the purchase of the following:

 

 

April 3,

2022

 

 

January 2,

2022

 

Land

 

$485,239

 

 

$485,239

 

Equipment

 

 

3,082,831

 

 

 

2,674,529

 

Buildings and leasehold improvements

 

 

1,800,014

 

 

 

1,322,085

 

 

 

 

 

 

 

 

 

 

Total property and equipment

 

 

5,368,084

 

 

 

4,481,853

 

Accumulated depreciation

 

 

(2,697,733)

 

 

(2,630,764)

Less - property held for sale

 

 

(258,751)

 

 

(258,751)

Net property and equipment

 

$2,411,600

 

 

$1,592,338

 

Depreciation expenseassets and the business operating as Van Stephan Village Bier Garten ("VBG"), a full-service bar and restaurant in Cocoa, Florida. The restaurant features a German-themed menu, specialty imported European beers, and regular entertainment. The purchase price was $690,000, paid in cash at closing. Concurrent with the purchase, we entered into a five-year lease with three five-year renewal options for the 13-week periods in 2022 and 2021 was $68,902 and $54,269, respectively.property currently occupied by the business. The terms of the triple net lease call for an initial monthly rent of $8,200.

 

NOTE 4 - ACCRUED EXPENSESThe following table presents our preliminary estimate of the fair value of the assets acquired and liabilities assumed in the VBG transaction is:

 

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

 

Assets acquired:

 

 

 

Inventory

 

$22,000

 

Equipment

 

 

230,000

 

Leasehold improvements

 

 

273,000

 

Trademark, website, and other intangibles

 

 

15,000

 

 Non-compete agreement

 

 

150,000

 

Purchase price

 

$690,000

 

 

 
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NOTE 3 – INTANGIBLE ASSETS

At October 2, 2022, based upon our preliminary evaluation of the value of acquired assets, intangible assets are the following:

 

 

Estimated Useful Life

(Years)

 

 

Original Cost

 

 

Accumulated

Amortization

 

 

Net Carrying Value

 

Covenants not to compete

 

2-4

 

 

$450,000

 

 

$(37,500)

 

$412,500

 

Trademarks, tradenames, websites and social media sites

 

 

5-20

 

 

 

140,000

 

 

 

(7,000)

 

 

133,000

 

 

 

 

 

 

 

$590,000

 

 

$(44,500)

 

$545,500

 

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

 

 

October 2, 2022

 

 

January 2, 2022

 

Land

 

$485,239

 

 

$485,239

 

Equipment

 

 

3,901,165

 

 

 

2,674,529

 

Buildings and leasehold improvements

 

 

2,351,188

 

 

 

1,322,085

 

 

 

 

 

 

 

 

 

 

Total property and equipment

 

 

6,737,592

 

 

 

4,481,853

 

Accumulated depreciation

 

 

(2,937,348)

 

 

(2,630,764)

Less - property held for sale

 

 

(258,751)

 

 

(258,751)

Net property and equipment

 

$3,541,493

 

 

$1,592,338

 

Depreciation expense for the 39-week periods in 2022 and 2021 was $306,584 and $172,261, respectively.

 

NOTE 5 - ACCRUED EXPENSES

Accrued expenses consisted of the following at:

 

 

October 2, 2022

 

 

 January 2, 2022

 

Accrued real estate taxes

 

$105,972

 

 

$103,615

 

Accrued bonus compensation

 

 

59,139

 

 

 

7,000

 

Accrued payroll

 

 

155,395

 

 

 

44,700

 

Accrued payroll taxes

 

 

11,884

 

 

 

8,424

 

Accrued sales taxes payable

 

 

89,150

 

 

 

50,414

 

Accrued vacation pay

 

 

17,663

 

 

 

17,663

 

Accrued gift card liability

 

 

26,239

 

 

 

10,036

 

Accrued franchise royalty

 

 

6,681

 

 

 

2,614

 

Other accrued expenses

 

 

18,504

 

 

 

9,875

 

 

 

$490,627

 

 

$254,341

 

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NOTE 6 - LONG TERM DEBT

 

The Company's long-term debt is as follows:

Our long-term debt is as follows:

 

October 2, 2022

 

 

January 2, 2022

 

 

April 3,

2022

 

January 2,

2022

 

 

 

 

 

 

Three notes payable to a bank dated June 28, 2021, due in monthly installments totaling $22,213, including principal and interest at a fixed rate of 3.45% through June 28, 2031. Beginning in July 2031, the interest rate will be equal to the greater of the "prime rate" plus .75%, or 3.45%. These notes mature on June 28, 2036. The notes are secured by mortgages covering ten BTND operating locations. The notes are guaranteed by BT Brands, Inc. and a shareholder of the Company.

 

$2,905,900

 

$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 on Company owned properties. The notes are guarenteed by BT Brands, Inc. and a shareholder of the Company.

 

$2,987,109

 

$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

 

Minnesota Small Business Emergency Loan dated April 29, 2020, payable in monthly installments of $458.33 beginning December 15, 2020, including principal and interest at 0%. This note is secured by the personal guaranty of a shareholder of the Company. Pursuant to the terms of the loan, $13,750 of the loan was forgiven on June 22, 2022.

 

 

4,583

 

 

 

22,000

 

 

3,007,734

 

3,049,971

 

 

2,910,483

 

3,049,971

 

Less - unamortized debt issuance costs

 

(45,649)

 

(46,999)

 

(42,949)

 

(46,999)

Current maturities

 

 

(171,357)

 

 

(169,908)

 

 

(169,504)

 

 

(169,908)

 

 

 

 

 

 

$2,698,030

 

 

$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 Incentive 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 April 3,October 2, 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 "20192019 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 quarternine months 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 the 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 period39 weeks in 2022 was $33,500$102,300 and was zero in a similar period in 2021. Based on current estimates, we project that for current grants, approximately $200,000 in stock-based compensation expense will be recognized over the first quarter of 2021.next three years.

 

The Company utilizesWe utilize the Black-Scholes option pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:

 

 

·

Stock price – Published trading market values of the Company's common stock as of the grant date.

 

·

Exercise price – The stated exercise price of the stock option.

 

·

Expected life – The simplified methodmethod.

 

·

Expected dividend – The rate of dividends that the Company expectsexpected to paybe paid over the term of the stock option.

 

·

Volatility – Estimated volatility.

Risk-free interest rate – The daily United States Treasury yield curve rate corresponding to the expected lifevolatility based on a sample of the award.comparable companies.

 

 
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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

 

 

 

 

 

Canceled, forfeited, or expired

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

(8,200)

 

 

2.50

 

 

 

 

 

 

 

 

 

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 October 2, 2022

 

 

227,550

 

 

$2.67

 

 

 

9.8

 

 

0

 

Options exercisable at October 2, 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 April 3,October 2, 2022:

 

Fair value of options granted during the period

 

$1.392

 

 

$1.39

 

Expected life (in years)

 

4.833

 

 

4.83

 

Expected dividend

 

$

 

 

$-

 

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'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 acquisition ofacquiring Keegan'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$597,836 is reflected as a liability in the accompanying financial statements.statements as of October 2, 2022.

 

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

With the acquisition of PIE assets, we entered 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 $519,040 is reflected as a liability in the accompanying financial statements as of October 2, 2022. The weighted-average remaining lease term is approximately 6.9 years.

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 lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

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With the acquisition of Village Bier Garten assets, we entered a five-year lease with the seller for approximately 3,000 square feet of restaurant space and access to an additional 3,000 square feet of shared entertainment and seating area. The terms of the triple-net 60-month lease provide for an initial rent of $8,200 per month with an annual escalation of 3%. The VBG lease includes three five-year renewal option periods. The VBG lease does not provide an implicit interest 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 lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

The VBG lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease cost,obligation and a right-of-use asset of $469,949. The present value discounted at 5% of the Company will incur certain variableremaining lease costs, which are expected to average approximately $3,000 per month beginningobligation of $454,510 is reflected as a liability in Aprilthe accompanying financial statements as of October 2, 2022.

 

Following is a schedule of the approximate minimum future lease payments on the operating lease for the Keegans operating locationleases as of April 3,October 2, 2022:

 

2022

 

$50,000

 

 

Total

 

Remainder 2022

 

$69,600

 

2023

 

61,650

 

 

281,676

 

2024

 

63,500

 

 

289,236

 

2025

 

67,400

 

 

297,909

 

2026

 

69,400

 

2039

 

306,838

 

2027 and thereafter

 

 

459,050

 

 

 

531,553

 

 

 

 

Total future minimum lease payments

 

762,000

 

 

1,776,812

 

Less - interest

 

 

145,483

 

 

 

(205,366)

Present value of lease payments

 

$

616,517

 

 

$1,571,446

 

The weighted-average remaining lease term is approximately 5.9 years.

 

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.

 

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NOTE 8 9 - 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"). The Company's$179,000. Our 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 April 3,October 2, 2022, is its fair value of $304,000, comprised of the $75,000 value determined by the Company for the initial common shares and warrants and the $209,000 cost of the February 2, investment in the NGI Convertible Preferred Stock and Warrants.BT Brands  

 

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 is not awareWe are unaware of any significant asserted or potential claims whichthat could impact itsour financial position.

NOTE 10 – SUBSEQUENT EVENT

On May 11, 2022, the Company acquired 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. The Pie Coffee assets were acquired for $1,173,500 of cash. The Company has not yet finalized the allocation of the purchase price. At the time of purchase, we entered into a five-year triple-net lease for the property occupied by Pie Coffee with three 5-year renewal options. The initial rent of $10,000 per month for 24 months increases annually at 3% during the lease term and option periods.

 

 
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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") should be read in conjunction with the Company's condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly reportReport on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's annual reportAnnual Report on Form 10-K for the year ended January 2, 2022.

 

Introduction

 

As of AprilOctober 2, 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.

·

Village Bier Garten is a German-themed restaurant, bar, and entertainment venue in Cocoa, Florida.

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 burgerstraditional grilled hamburger and other 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: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 allows forwith 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 threenine months of fiscal 2022 compared to 2021 and currently is approximately $12.10.about $12.60. 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. We most recently increased menu prices in September of 2022. 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.

Recent Events

During the fourth quarter39 weeks ending October 2, 2022, we acquired three operating restaurants and a 41.2% ownership interest in an operator of six restaurants with the net proceeds from our November 2021 we completed an 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 will reduce our dependency on the financial performance of our securities atBurger Time restaurants.

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Keegan's Seafood Grille, 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, we acquired the assets and business operations of the iconic Pie In The Sky Coffee Shop and Bakery "PIE." The store 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 August 2022, we purchased the assets and business operating as Van Stephan Village Bier Garten, a full-service bar and restaurant in Cocoa, Florida. The restaurant features a German-themed menu, specialty imported European beers, and regular entertainment.

In June 2022, we acquired shares representing 41.2% ownership 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 industryIndustry trends that may have ana direct impact on our business. TheseCurrent trends principally relate toinclude difficulties attracting food service workers and rapid inflation in the cost of input items. Recent trends also include the rapidly changing area of technology and food delivery 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 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 stablerose in 20202021, continued to increase in 2021, and since 2020 have increasedrecently risen by approximately 13.7%7% 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, as the pandemic peaked, our Burger Time business experienced a significant increase in business volume, contributedcontributing to improved profit margins. AdditionalFuture margin improvements may havebe difficult to achieve and will be achieved through operational enhancements, equipment advances, and increased sales volumes to help offset anyoffsetting food cost increases dueincreases.

Labor is a critical factor in operating our stores. Securing staff to run our locations at full capacity has become more challenging in most areas where we operate our restaurants. The current labor market has resulted in higher wages as the competitive state ofcompetition for employees intensifies, not only in the restaurant industry.industry but in practically all retail and service industries. We must develop and retain quality employees.

 

16

Although moderating recently, since March 2020, COVID and its variants have adversely affected workforces, customers, economies, and financial markets globally and disrupted the US economy's normal flow. Our stores have, with some exceptions, generally remained open for drive-through business. However, many businesses have experienced a disruption of operations. More recently, food service businesses, including ours, have faced challenges in attracting and hiring workers. Labor shortages have resulted in some store curtailment of operating hours which may become more acute as market participants compete to attract employees.

Table of Contents

 

We can't predict the effects of public health matters and their impact on our business. The general state of the economy influencesresponse 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. We continue to monitor public health issues and their impact. It is difficult to predict the future considering the many factors, including the spread of new variants of the original coronavirus disease.

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Table of Contents

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

·

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 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 critical 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 toand 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.

 

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Assuming we successfully acquire 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.

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Table of Contents

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 on the availability of capital for such purposes. We cannot be certain that capital will be available to us on acceptable terms, if at all.

First Quarter Highlights

On March 2, 2022, we consummated the acquisition 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.

Key Performance Indicators

We use comparable 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 and 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.

 
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Results of Operations for the Thirteen Weeks Ended April 3,October 2, 2022, and the Thirteen Weeks Ended April 4,October 3, 2021

 

The following table sets forth our Condensed Statementsconsolidated condensed statements of Operationsincome and percentages of total revenues for the thirteen-week fiscal periods indicated as a percentage of total revenues. Percentagesperiods. The percentages below may not reconcile because of rounding.

 

 

13 Weeks Ended,

 

 

13 weeks ended,

October 2, 2022

 

13 weeks ended,

October 3, 2021

 

 

April 3,

2022

 

April 4,

2021

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

SALES

 

 

100.0

 

100.0

 

$4,023,920

 

 

 

100.0%

 

$2,280,999

 

 

 

100.0%

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant operating expenses

 

 

 

 

 

 

 

 

 

Food and paper costs

 

34.8

 

37.7

 

 

1,604,858

 

39.9

 

944,177

 

41.4

 

Labor costs

 

29.3

 

29.1

 

 

1,336,039

 

33.2

 

607,780

 

26.6

 

Occupancy costs

 

8.4

 

7.0

 

 

367,872

 

9.1

 

132,542

 

5.8

 

Other operating expenses

 

5.8

 

6.3

 

 

248,383

 

6.2

 

102,943

 

4.5

 

Depreciation and amortization

 

3.3

 

2.8

 

 

168,855

 

4.2

 

60,405

 

2.6

 

General and administrative

 

 

14.0

 

 

 

5.4

 

 

 

288,922

 

 

 

7.2

 

 

 

74,415

 

 

 

3.3

 

Total costs and expenses

 

 

95.7

 

 

 

88.5

 

 

 

4,014,929

 

 

 

99.8

 

 

 

1,922,256

 

 

 

84.3

 

Income from operations

 

4.3

 

11.5

 

 

8,991

 

.2

 

 358,743

 

15.7

 

INTEREST EXPENSE

 

 

(1.4)

 

 

(2.0)

 

(33,638)

 

(.8)

 

(32,916)

 

(1.5)

INCOME BEFORE TAXES

 

2.9

 

9.5

 

PROVISION FOR INCOME TAXES

 

 

(0.9)

 

 

(2.6)

NET INCOME

 

 

2.0

 

6.9

INTEREST INCOME AND OTHER

 

(28,618)

 

(.7)

 

 

 

EQUITY IN AFFILIATE LOSS

 

(121,641)

 

(3.0)

 

 

 

INCOME TAX (EXPENSE)

 

 

 

 

 

 

(90,000)

 

 

(3.9)

NET INCOME (LOSS)

 

$(174,906)

 

 

(4.3)%

 

$235,827

 

 

 

10.3%

 

Net Revenues:

 

Net sales for the third fiscal first quarter of 2022 increased $132,323 or 6.8%$1,742,921 to $2,073,195$4,023,920 from $1,940,872$2,280,999 in the first quarter of fiscal 2021. A declineThe increase during the period resulted from sales from the recently acquired businesses contributing $1,938,508 in salesrevenue. Sales at the Burger Time locations was attributable principallydeclined approximately 14% as customer purchasing patterns returned to the labor issuespre-pandemic levels. Staffing challenges also adversely impacted Burger Time, resulting in some curtailment of restaurant operatinglimited hours and poorer weather conditions than inisolated daily store closures during the year-earlier period. These negative effects were offset byquarter. 

Restaurant unit sales for Burger Time for the contribution to sales13 weeks ranged from a low of approximately one-month$115,000 to a high of approximately $311,000. The average sales for Keegan's Seafood Grille, which was acquired on March 2,each Burger Time unit were approximately $208,000 in 2022, and contributed approximately $345,000$24,500 below the same period in sales during the quarter.2021.

 

Costs of Sales - food and paper:

 

Cost of sales - food and paper decreased for the first quarter of fiscal 2022 decreasedperiod as a percentage of sales to 34.8%39.9% of restaurant sales from 37.7%41.4% of restaurant sales in the firstthird quarter of fiscal 2021. This decrease resulted fromwas the net result of generally a higher cost of sales for Keegan's, inflationary pressures offset by menu price increase inincreases and the second halfacquisition of 2021 and relatively favorable pricing negotiated with the Company's ground beef supplier.PIE which operates at a significantly lower food 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 88.4% of sales in the firstthird fiscal quarter of 2022 compared to 80.2%from 78.4% 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 recently acquired locations and the matters discussed in the "Cost of Sales," "Labor Costs," and "Occupancy and “OtherOther Operating Cost"Costs" sections below.

Labor Costs:

For the first 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% of restaurant sales from 29.1% of restaurant sales the in fiscal 2021 first quarter. The increase in the rate resulted from an increase in new-hire wage rates 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. Payroll costs are semi-variable, meaning that they do not change proportionally to changes in revenue.

 

 
1921

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Labor Costs

For the third quarter of fiscal 2022, labor and benefits cost increased as a percentage of sales to 33.2% of restaurant sales from 26.6%in fiscal 2021. The increase in the percentage cost resulted from tighter labor markets leading to higher hourly wage costs offset by leveraging existing staffing and higher labor costs associated with the PIE acquisition. Payroll costs are semi-variable, meaning they do not change proportionally to changes in revenue.

Occupancy and Other Operating Expenses

 

For the firstthird fiscal quarter of 2022, occupancy and other expenses increased by $34,748. As a percentageto 15.3% of sales these costs increased to 14.2% of restaurant sales compared with 13.3% in a similar periodfrom 10.3% 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 three new locations.

 

Depreciation and Amortization Expense:

 

For the firstthird fiscal quarter of 2022, depreciation and amortization increased by $14,579 to $69,415 (3.3%$168,855 (4.2% of sales) from $54,836 (2.8%$60,405 (2.6% of sales) in the same period inthird 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 $214,506 from $105,338 (5.4% of sales) in$74,415 to $288,921; the first fiscal quarter of 2022increase is associated with expenses related to $291,062 (14.0% of sales) in 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 recentcosts related to long-term management agreements, incentive stock offering,options and legal and accounting relating to our status as a public company. For these reasons, third-quarter general and administrative expenses were 7.2% of sales, a significant increase from 3.3% in the Company increased officer compensation over the year-earlier level and increased staff.earlier year.

 

Income from Operations

 

IncomeThe income from operations for the first fiscalthird quarter of fiscal 2022 was $88,921$8,991 compared to income from operations of $223,495$358,743 in the 2021 period. The changesame period in 2021; the percentage of income from operations as a percentage of sales declined to .2% from 15.7%, reflecting a decline in fiscal 2022 compared to fiscal 2021 was due toprofit margin is the significant increase in Generalresult of costs associated with transitioning the acquired businesses, higher general and Administrative Expenses following the Company's initial public offeringadministrative expenses and the matters discussed in the "Net Revenues" and "Restaurant Operating Costs" sections above.

 

Restaurant-level EBITDA:

 

To supplement the condensed consolidated financial statements, which are prepared and presented 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.

 

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 amortizationimpairment charges are excluded because they are not ongoing controllable cash expenses and are not relatedunrelated to the health of ongoing operations.operations' health.  

 

13-Week Period

 

 

13 weeks ended,

 

 

April 3,

2022

 

 

April 4,

2021

 

 

October 2, 2022

 

 

October 3, 2021

 

Revenues

 

$2,073,195

 

$1,940,872

 

 

$4,023,920

 

$2,280,999

 

Reconciliation:

 

 

 

 

 

 

 

 

 

 

Income from operations

 

95,667

 

223,495

 

 

8,991

 

358,743

 

Depreciation and amortization

 

69,415

 

54.836

 

 

168,855

 

60,405

 

General and administrative, corporate-level expenses

 

284,315

 

105,338

 

 

 

288,922

 

 

 

74,415

 

Restaurant-level EBITDA

 

449,397

 

383,689

 

 

$466,768

 

$493,563

 

Restaurant-level EBITDA margin

 

21.6%

 

19.8%

 

11.6%

 

21.6%

 

 
2022

Table of Contents

Our Results of Operations for the Thirty-nine Weeks Ended October 2, 2022, and the Thirty-nine Weeks Ended October 3, 2021

The following table sets forth our consolidated condensed statements of income and percentages of total revenues for the thirty-nine-week fiscal period. The percentages below may not reconcile because of rounding.

 

 

  39 weeks ended,

October 2, 2022

 

 

 39 weeks ended,

October 3, 2021

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

SALES

 

$9,621,996

 

 

 

100.0%

 

$6,604,554

 

 

 

100.0%

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper costs

 

 

3,637,814

 

 

 

37.8

 

 

 

2,580,224

 

 

 

39.1

 

Labor costs

 

 

3,122,867

 

 

 

32.5

 

 

 

1,794,499

 

 

 

27.2

 

Occupancy costs

 

 

803,792

 

 

 

8.4

 

 

 

436,196

 

 

 

6.6

 

Other operating expenses

 

 

577,035

 

 

 

6.0

 

 

 

355,024

 

 

 

5.4

 

Depreciation and amortization

 

 

351,084

 

 

 

3.6

 

 

 

173,799

 

 

 

2.6

 

General and administrative

 

 

1,035,639

 

 

 

10.8

 

 

 

295,397

 

 

 

4.5

 

Total costs and expenses

 

 

9,528,231

 

 

 

99.0

 

 

 

5,635,139

 

 

 

85.3

 

Income from operations

 

 

93,765

 

 

 

1.0

 

 

 

969,415

 

 

 

14.7

 

INTEREST EXPENSE

 

 

(88,099)

 

 

(.9)

 

 

(161,148)

 

 

(2.4)

INTEREST INCOME AND OTHER

 

 

(99,384)

 

 

(1.0)

 

 

 

 

EQUITY IN AFFILIATE LOSS

 

 

(135,813)

 

 

(1.4)

 

 

 

 

INCOME TAX BENEFIT (EXPENSE)

 

 

5,000

 

 

 

 

 

 

(225,000)

 

 

(3.4)

NET INCOME (LOSS)

 

$(224,531)

 

 

(2.3)%

 

$583,267

 

 

 

8.9%

Net Revenues:

Net sales for the 39 weeks representing the first three-quarters of fiscal 2022 increased $3,017,442 or 45.7% to $9,621,996 from $6,604,554 in fiscal 2021. The increase in sales was principally the result of a favorable impact in the 39 weeks of acquired restaurants which contributed approximately $3.8 million in sales, offsetting a decline of approximately $700,000 or 11% in BTND revenues.

Burger Time unit sales for the 39 weeks ranged from a low of approximately $345,000 to a high of approximately $861,000. Average sales for each Burger Time unit were approximately $599,000 in 2022, a decline from approximately $671,400 in the same 39-week period in 2021. The sales decline in the 2022 period 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.

Costs of Sales - food and paper:

Cost of sales - food and paper for the 39-week period of fiscal 2022 decreased as a percentage of sales to 37.8% from 39.1% of restaurant sales in the same period in 2021. This decrease resulted from the seasonally strong performance at PIE which operates at lower food and paper costs than our traditional business and Keegan's.

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 84.6% of sales in the first 39 weeks of 2022 from 78.2% in the same period in fiscal 2021. This increase was due to the rise in sales activity from new locations and its impact, as further discussed in the "Cost of Sales," "Labor Costs," and "Occupancy and Other Operating Costs" sections below.

Labor Costs:

For the 39-week period in fiscal 2022, labor and benefits cost increased to 32.5% of restaurant sales from 27.2% 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 change proportionally to changes in revenue.

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Table of Contents

Occupancy and Other Operating Expenses:

For the first 39 weeks of fiscal 2022, occupancy and other expenses increased to 14.4% of sales from 12.0% 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 for the 39 weeks of fiscal 2022 ending October 2, 2022, increased by $173,757 to $351,084 (3.6% of sales) from $177,285 (2.6% of sales) in the similar period of 2021 and are the result of the purchase of three restaurants and capital improvements, including significant parking lot repairs, at several of our locations.

General and Administrative Costs:

General and administrative costs increased 250.6%, or $740,242, to $1,035,639, from $295,397 (11.4% of sales) in the 39 weeks of fiscal 2022. 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 $93,765 in the 39 weeks of fiscal 2022 compared to $969,415 in the same period in fiscal 2021. The change in income from operations in the fiscal 2022 period compared to fiscal 2021 was due primarily to the increase in general and administrative expenses, including stock-based compensation, which included higher costs associated with the transition to a public company near the end of 2021, including the items noted in "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 helpful 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 or superior to operating income calculated under GAAP. The reconciliations to operating income set forth below should be carefully evaluated.

We define restaurant-level EBITDA as operating income before 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 related to the continuing health of the business.

 

 

39 weeks ended,

 

 

 

October 2, 2022

 

 

October 3, 2021

 

Revenues

 

$9,621,996

 

 

$6,604,554

 

Reconciliation:

 

 

 

 

 

 

 

 

Income from operations

 

 

93,765

 

 

 

949,415

 

Depreciation and amortization

 

 

351,084

 

 

 

173,799

 

General and administrative, corporate-level expenses

 

 

1,035,639

 

 

 

295,397

 

Restaurant-level EBITDA

 

$1,480,488

 

 

$1,438,611

 

Restaurant-level EBITDA margin

 

 

15.4%

 

 

21.8%

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Liquidity and Capital Resources

 

In its peak period, 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 experienced at the height of COVID restrictions. For the 1339 weeks that ended April 3,October 2, 2022, the Company earnedoperations reflected an after-taxoperating profit of $42,650. Principally, as a result of the Company's public offering of common stock and warrants in November 2021, on April 3,$93,765. On October 2, 2022, the Companywe had $11,073,645$7.2 million in cash and working capital of $9,905,672.$6.8 million, a decrease of $4.8 million from January 2, 2022; the decline is the result of the purchase of three restaurants for a total of $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, public health matters may again impact the Small Business Administration's Paycheck Protection Program ("PPP"). The Company accounted foreconomy. 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 resulting from matters related to public health. 

 

Our primary requirements for liquidity are to fundfunds our working capital needs, capital expenditures, and general corporate needs, as well as to investand investments 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 may operate with negative working capital. Our primary sources of liquidity and cash flowsflow sources are operating cash flows and cash on hand. We use thisavailable cash 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 asOperating cash flow for 39 weeks ending October 2, 2022, was $484,504. The cash flow from operations was impacted negatively by a resultdecline in BTND revenue, increased expenses associated with the transition to a public company, our recent acquisitions and payment of a positive one-month contribution from the operations Keegan's in March 2022, we generated positive2021 income tax liabilities. We expect operating cash flow in the 13 weeks ending April 3, 2022. The winter months have historically been seasonally the slowest part of the Company's business.future periods to be significantly affected 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 three operating restaurants, and acquiring 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 April 3,October 2, 2022, we had $3$4.4 million in contractual obligations relating principally to amounts due under mortgages on the real property on which stores are situated.and $1.5 million in capitalized lease obligations. Our monthly required payment ispayments on lease and mortgage obligations are approximately $32,000. $47,000. In the third 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.

 

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,sometimes 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

Seasonality and Inflation

Many of our restaurants experience significant seasonal fluctuations in the cost of beef would result in approximately $175,000 of additional food costs for the Company annually.activity and revenue. 

 

 
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Seasonality and Inflation

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 third and third fiscal quarters at this location will be materially more significant than during the first and fourth fiscal quarters.

 

Management believes that inflationOur two Florida restaurants 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 in Florida will increase seasonally.

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 affect the Company'saffected operations. The Company generally hasGenerally, we have been able to increase menu prices or modify itsour operating procedures to offset increases in its operating costs.

The costcosts 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 better manage the risk 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.rising prices.

 

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 toabout the effect that changes in the regulatory environment changes 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 on our financial statements and our results of operations and financial condition as the result of the adoption of Recent Accounting Pronouncements,Pronouncements; see "Part I, Item 1, Note 1. Summary of Significant Accounting Policies" of the Notes to Condensed Consolidated Financial Statements included in this quarterly report. 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.

 

Our critical accounting policies are those that materially affect our financial statements and involve subjective or complex judgments by management. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates. 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 growth company" as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act 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.

 

 
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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.

 

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'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 April 3,October 2, 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 April 3,October 2, 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 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.

 

 
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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

 

Since the date on which the Company filed its annual report on Form 10-K and through the date of this quarterly report, the Company did not sell any securities.None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 

 
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ITEM 6. EXHIBITS.

 

Exhibit

Description

31.1

 

31.1

Certification of the Company's Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly Report on Form 10-Q for the quarter ended April 3,October 2, 2022.

31.2

 

Certification of the Company's Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’sregistrant's Quarterly Report on Form 10-Q for the quarter ended April 3,October 2, 2022.

32.1*

 

Certification of the Company’sCompany's Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

32.2*

 

Certification of the Company’sCompany's Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

101.INS101. 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.SCH101. SCH.

 

Inline XBRL Taxonomy Extension Schema DocumentDocument.

101.CAL101. CAL.

 

Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.

101.DEF101. DEF.

 

Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument.

101.LAB101. LAB.

 

Inline XBRL Taxonomy Extension LabelLabels Linkbase DocumentDocument.

101.PRE101. PRE.

 

Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.

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: May 18,November 15, 2022

By:

/s/ Kenneth Brimmer

 

Name:

Kenneth Brimmer

Title:

Chief Operating Officer and Principal Financial Officer

 

 

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