BT Brands (BTBD) 10-Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: September 27, 2020

or

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

For the transition period from __________ to __________

Commission File Number: 333-233233

BT BRANDS, INC.

(Exact name of registrant as specified in its charter)

Delaware	333-233233
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
405 Main Avenue West, Suite 2D, West Fargo, ND	58078
(Address of principal executive offices)	(Zip Code)
(701) 277-0080
(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, $0.001 per share	BTBD	OTC.BB

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes     ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes     ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging Growth Company	☒

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

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

At November 8, 2020, there were 8,095,004 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, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations and future plans. Forward-looking statements can also be identified by the fact these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.

While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this quarterly report. Such factors may include, without limitation, the risks, uncertainties and regulatory developments (1) related to the COVID-19 pandemic, which include risks and uncertainties related to the current unknown duration of the COVID-19 pandemic, the impact of governmental regulations that have been, and may in the future be, imposed in response to the pandemic which potentially could have an impact on discretionary consumer spending and (2) those discussed and described in the Company’s 2019 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2020. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

2

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION.
ITEM 1.	FINANCIAL STATEMENTS.	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.	22
ITEM 4.	CONTROLS AND PROCEDURES.	22
PART II — OTHER INFORMATION.
ITEM 1.	LEGAL PROCEEDINGS.	23
ITEM 1A.	RISK FACTORS.	23
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	23
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	23
ITEM 4.	MINE SAFETY DISCLOSURES.	23
ITEM 5.	OTHER INFORMATION.	23
ITEM 6.	EXHIBITS.	24
SIGNATURES.		25

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BT BRANDS, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 27, 2020 AND SEPTEMBER 29, 2019

4

BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	September 27, 2020			December 29, 2019
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	1,393,263		$	258,101
Receivables		21,728			15,363
Inventory		57,618			56,432
Prepaid expenses		626			6,929
Total current assets		1,473,235			336,825
PROPERTY AND EQUIPMENT, net		1,597,635			1,650,012
LAND AND BUILDINGS HELD FOR SALE		349,244			449,244
INVESTMENT IN AND NOTE RECEIVABLE FROM RELATED COMPANY		75,000			179,000
OTHER ASSETS, net		27,184			18,458
Total assets	$	3,522,298		$	2,633,539
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt	$	240,680		$	277,666
Accounts payable		422,054			321,855
Accrued expenses		203,413			202,732
Income taxes payable		235,898			2,898
Total current liabilities		1,102,045			805,151
LONG-TERM DEBT, less current maturities		3,001,206			3,221,035
UNEARNED VENDOR REBATE		-			3,668
Total liabilities		4,103,251			4,029,854
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value, 2,000,000 shares authorized, no shares outstanding at September 27, 2020 and December 29, 2019		-			-
Common stock, $.001 par value, 50,000,000 authorized, 8,095,004 shares outstanding at September 27, 2020 and December 29, 2019		8,095			8,095
Additional paid-in capital		497,671			497,671
Accumulated deficit		(1,086,719	)		(1,902,081	)
Total shareholders' deficit		(580,953	)		(1,396,315	)
Total liabilities and shareholders' deficit	$	3,522,298		$	2,633,539
See Notes to Condensed Consolidated Financial Statements

5

BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	39 Weeks Ended,						13 Weeks Ended,
	September 27, 2020			September 29, 2019			September 27, 2020			September 29, 2019
SALES	$	6,074,222		$	5,116,161		$	2,374,454		$	1,850,167
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs		2,299,989			2,021,258			863,997			727,095
Labor costs		1,718,703			1,624,219			624,696			570,220
Occupancy costs		504,142			538,963			170,109			156,074
Other operating expenses		313,101			259,289			121,827			108,148
Depreciation and amortization		140,588			171,563			49,668			51,097
Impairment of asset held for sale		100,000			93,488			-			-
General and administrative		371,455			426,968			188,292			135,695
Total costs and expenses		5,447,978			5,135,748			2,018,589			1,748,329
Income (loss) from operations		626,244			(19,587	)		355,865			101,838
INTEREST INCOME		92,707			-			28,507			-
OTHER INCOME		466,758			-			-			-
INTEREST EXPENSE		(136,347	)		(159,964	)		(45,188	)		(73,211	)
INCOME (LOSS) BEFORE TAXES		1,049,362			(179,551	)		339,184			28,627
PROVISION FOR INCOME TAXES		(234,000	)		-			(85,000	)		-
NET INCOME (LOSS)	$	815,362		$	(179,551	)	$	254,184		$	28,627
NET INCOME (LOSS) PER COMMON SHARE
Basic and Diluted -	$	0.10		$	0.00		$	0.03		$	0.00
WEIGHTED AVERAGE SHARES USED IN
COMPUTING PER COMMON SHARE AMOUNTS
Basic and Diluted -		8,095,004			8,086,004			8,095,004			8,086,004
See Notes to Condensed Consolidated Financial Statements

6

BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
	39 Weeks Ended			39 Weeks Ended
	September 27, 2020			September 29, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)	$	815,362		$	(179,551	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities-
Depreciation		139,313			171,563
Amortization of franchise agreement		1,275			1,275
Amortization of debt issuance cost		3,882			3,882
Loss on sale of property and equipment		-			1,800
Impairment of property and equipment		100,000			93,488
Deferred tax benefit		(10,000	)		-
Payment of in-kind interest		39,368			-
Changes in operating assets and liabilities
Receivables		(6,365	)		1,582
Inventory		(1,186	)		4,042
Prepaid expenses		6,303			5,954
Accounts payable		70,999			62,183
Unearned vendor rebate		(3,668	)		(4,890	)
Accrued expenses		681			(2,358	)
Income taxes payable		233,000			-
Net cash provided by operating activities		1,388,964			158,970
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds (advances) on notes due from related entity		104,000			(30,000	)
Purchase of property and equipment		(57,736	)		-
Net cash provided by (used) in investing activities		46,264			(30,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		77,500			-
Principal payments on long-term debt		(377,566	)		(198,058	)
Net cash used in financing activities		(300,066	)		(198,058	)
CHANGE IN CASH		1,135,162			(69,088	)
CASH, BEGINNING OF PERIOD		258,101			663,511
					-
CASH, END OF PERIOD	$	1,393,263		$	594,423
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	93,096		$	157,377
SUPPLEMENTAL DISCLOSURE OF INVESTING AND FINANCING ACTIVITIES
Purchase of fixed assets included in accounts payable	$	29,200		$	-
Transfer of property and equipment to assets held for sale		-			189,640
See Notes to Condensed Consolidated Financial Statements

7

BT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
					Additional
	Common Stock				Paid-in		Accumulated
	Shares		Amount		Capital		(Deficit)			Total
Balances, December 29, 2019		8,095,004	$	8,095	$	497,671	$	(1,902,081	)	$	(1,396,315	)
Net income		-		-		-		815,362			815,362
Balances, September 27, 2020		8,095,004	$	8,095	$	497,671	$	(1,086,719	)	$	(580,953	)
					Additional
		Common Stock			Paid-in		Accumulated
		Shares	Amount		Capital		(Deficit)			Total
Balances, December 31, 2018		8,086,004	$	8,086	$	484,180	$	(1,533,504	)	$	(1,041,238	)
Net loss		-		-		-		(179,551	)		(179,551	)
Balances, September 29, 2019		8,086,004	$	8,086	$	484,180	$	(1,713,055	)	$	(1,220,789	)
					Additional
		Common Stock			Paid-in		Accumulated
	Shares		Amount		Capital		(Deficit)			Total
Balances, June 28, 2020		8,095,004	$	8,095	$	497,671	$	(1,340,903	)	$	(835,137	)
Net income		-		-		-		254,184			254,184
Balances, September 27, 2020		8,095,004	$	8,095	$	497,671	$	(1,086,719	)	$	(580,953	)
					Additional
		Common Stock			Paid-in		Accumulated
	Shares		Amount		Capital		(Deficit)			Total
Balances, June 30 , 2019		8,086,004	$	8,086	$	484,180	$	(1,741,682	)	$	(1,249,416	)
Net income		-		-		-		28,627			28,627
Balances, September 29, 2019		8,086,004	$	8,086	$	484,180	$	(1,713,055	)	$	(1,220,789	)
See Notes to Condensed Consolidated Financial Statements

8

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”, or “BT Brands”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated in consolidation and have prepared on a basis consistent in all material respects with the accounting policies for the fiscal year ended December 29, 2019. In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

The accompanying Condensed Consolidated Balance Sheet as of September 27, 2020 does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of December 29, 2019 and the related notes thereto included in the Company’s Form 10-K for the fiscal year ended December 29, 2019.

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 with the objective of acquiring an operating entity. Effective on July 30, 2018, the Company acquired 100% of the ownership BTND, LLC. in exchange for common stock in the Company through a Share Exchange Agreement (“Share Exchange”) with BTND, LLC (“BTND”), and its Members. On June 12, 2020, the Company adopted resolutions by written consent of 100% of its shareholders approving the reincorporation of the Company to the State of Wyoming from the State of Delaware which is expected to be completed in November 2020.

Business

The Company currently operates company-owned fast-food restaurants called Burger Time. The Company also operates one unit in Minnesota as a franchisee of International Dairy Queen. The Company operates three Burger Time locations in Minnesota, four in North Dakota, and two in South Dakota. The Company closed a store in Richmond, Indiana during 2018 which is listed for sale, resulting in a total of ten operating restaurants on September 27, 2020. The Company owns a restaurant property in St. Louis, Missouri currently held for sale.

The Company’s Dairy Queen store is operated pursuant to the terms of a franchise agreement with International Dairy Queen. The Company is required to pay regular royalty and advertising payments to the franchisor and to remain in compliance with the terms of the franchise agreement.

Fiscal Year Period

The Company’s fiscal year is a 52/53-week year, ending on the Sunday closest to December 31. Most years consist of four 13-week accounting periods comprising the 52-week year. All references to years in this report refer to the 13-week periods in the respective fiscal year periods. Fiscal 2020 is a 53-week year ending January 3, 2021.

9

Cash

For purposes of reporting cash and cash flows, cash is net of outstanding checks and includes, amounts on deposit at banks and deposits in transit.

Receivables

Receivables consists of rebates due from a primary vendor.

Inventory

Inventory consists of food, beverages and supplies and is stated at lower of cost (first-in, first-out method) or net realizable value.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives which range from three to thirty years.

The Company reviews long-lived assets to determine if the carrying value of these assets may not be recoverable based on estimated cash flows. Assets are reviewed at the lowest level for which cash flows can be identified, which is at the restaurant level. In determining future cash flows, significant estimates are made by the Company with respect to future operating results of each restaurant over its remaining life. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets.

Assets Held for Sale

From time-to-time the Company may sell an existing operating unit or may close an operating unit and list the property for sale. A property in the St. Louis area is currently listed for sale. Also, in September of 2018 the Company closed an operating Burger Time unit in Richmond, Indiana and the Richmond property is listed for sale. In the second quarter of fiscal 2019 it was concluded to record a charge of $93,488 for impairment of the value of the Richmond location and in the second quarter of 2020 an additional $100,000 impairment charge was recorded.

Income Taxes

We provide for income taxes under (Accounting Standards Codification (ASC), 740), Accounting for Income Taxes. ASC 740 using an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted, as necessary.

The Company had a net operating loss carry-forward from the prior year of $153,000. In 2019, the prior losses resulted in an increase in the related deferred tax assets; however, full valuation allowances were made which reduced these deferred tax assets to zero. As of September 27, 2020, the Company estimates a current tax provision at the statutory rates of approximately 27.5% and as a result of the net operating loss carryforward offset by other timing differences including current nondeductible status of the impairment loss reserve, taxes payable are currently estimated at $235,898.

As of the of fiscal year 2019, the Company had no accrued interest or penalties relating to any income tax obligations. The Company currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its inception and all periods since 2016 are still open for examination.

10

Per Common Share Amounts

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income or (loss) per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted net loss per share because their effect would be anti-dilutive. There were no potentially dilutive shares outstanding as of the periods ending in 2020 and 2019, as the strike price for warrants outstanding was above the fair market price of the underlying stock in both periods.

Other Assets

Other assets are the allocated fair value of the acquired Dairy Queen franchise agreement related to the Company’s location in Ham Lake, Minnesota, which is being amortized over an estimated useful life of 14 years and deferred income tax benefits related to charges not currently deductible which the Company expect to realize in future periods.

Payroll Protection Plan (PPP) Loans

In May 2020, the Company borrowed $460,400 under the Small Business Administration’s Payroll Protection Program. Pursuant to the terms of the program, we expect that the loans will be forgiven, and the Company has filed the required documentation to complete the loan forgiveness. The Company is reasonably assured the entire amount of PPE advances will be forgiven and the anticipated loan forgiveness is reflected as “Other Income” for the nine-month period ending September 27, 2020. In accordance with current direction of the Internal Revenue Service, the payroll expenses paid with the Payroll Protection Plan proceeds have been reflected as a non-deductible expense in determining the provision for income taxes.

Liquidity and Capital Resources

The condensed consolidated financial statements have been prepared on a going concern basis. For the 39 weeks ended September 27, 2020, the Company earned an after-tax profit of $815,362. On September 27, 2020, the Company had $1,393,263 in cash and working capital of $371,190 an increase of $839,516 from the year-end deficit of $468,326.

Covid-19 is having a significant adverse impact on the United States economy. It is difficult to predict either the ultimate impact of the Covid-19 pandemic and governmental responses on the Company’s operating results and financial condition as the situation is evolving.

In May, 2020 the Company received pandemic-related loans totaling $487,900 of that amount, $460,400 was borrowed under the Small Business Administration’s Payroll Protection Program under the terms of the program we expect that the loans will be forgiven and the Company has filed the required documentation to complete the loan forgiveness. In May 2020, the Company also borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program. The Company expects to have sufficient cash assets to meet its obligations for a year from the issuance of these consolidated financial statements.

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NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

	27/09/2020			29/12/2019
Land	$	525,240		$	555,885
Equipment		2,422,521			2,390,545
Buildings		1,349,247			1,363,642
Total Property and  Equipment		4,297,008			4,310,072
Accumulated depreciation		(2,350,129	)		(2,210,816	)
Less -  Property held for sale		(349,244	)		(449,244	)
Net Property and Equipment	$	1,597,635		$	1,650,012

Depreciation expense for the 39-week periods in 2020 and 2019 was $139,313 and $167,242, respectively.

NOTE 3 – ACCRUED EXPENSES

Accrued expenses consisted of the following at:

	27/09/2020		29/12/2019
Accrued real estate taxes	$	40,162	$	66,959
Accrued payroll		59,125		69,572
Accrued payroll taxes		11,709		7,058
Accrued sales taxes payable		66,578		35,380
Accrued vacation pay		25,211		23,204
Other accrued expenses		628		559
	$	203,413	$	202,732

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NOTE 4 – LONG TERM DEBT

As a result of the many uncertainties surrounding the economy during the COVID-19 response, two of the Company’s mortgage lenders suspended and deferred current payments for a period of three months during the first half of 2020. The loans will continue to accrue interest at the stated rate, which is included in the principal.

The Company had the following long term debt obligations as of:
	27/09/2020			29/12/2019
Note payable to bank dated October 30, 2015 due in monthly installments of $6,916 through October 30, 2030, which includes principal and interest at a fixed rate of 4.75%. This note is secured by two of the Company's Minnesota locations and the personal guaranty of a shareholder of the Company.	$	683,311		$	699,311
Note payable to bank dated November 16, 2015 due in monthly installments of $14,846, which includes principal and interest at fixed rate of 4.75% through November 16, 2030. This note is secured by four of the Company's North Dakota locations and the personal guaranty of a shareholder of the Company.		1,474,383			1,509,435
Note payable to bank dated October 10, 2015 due in monthly installments of $4,153 through March 11, 2030, which includes principal and interest at fixed rate of 4.75%.  This note is secured by the Company's Dairy Queen location and the personal guaranty of a shareholder of the Company.		405,128			414,562
Note payable to bank dated March 11, 2016 due in monthly installments of $3,692 through March 11, 2031 which includes principal and interest at a fixed rate of 4.75%. This note is secured by one of the Company's South Dakota locations and the personal guaranty of a shareholder of the Company.		375,812			384,208
Notes payable to bank dated November 10, 2016 payable in monthly installements of $1,331 which includes principal and interest at 4%, the interest rate is subject to adjustment based on 5-year Treasury Note rate 2021 and cannot be less than 4%. This note is secured by property held for sale in Richmond Indiana and the personal guaranty of a shareholder of the Company.		143,698			151,234
Unsecured 8% notes payable to an entity controlled by shareholders of the Company dated December 26, 2017 originally due on demand after June 1, 2020.  Effective May 31, 2019 a revised note was entered into due July 31, 2023 with monthly payments of $10,000. The remaining balance was  paid in full in August, 2020.		-			207,264
Note payable to bank dated December 28, 2018 due in monthly installments of $1,644 through December 31, 2023 which includes principal and interest at a fixed rate of 5.50%. This note is secured by the West St. Paul location and the personal guaranty of a shareholder of the Company.		187,552			192,068
Minnesota Small business emergency loan dated April, 29, 2020 payable in monthly installments of $458.33 starting December 15, 2020 which includes principal and interest at 0%. This note is sescured by the personal guaranty of a shareholder of the Company.		27,500			-
		3,297,384			3,558,082
Less - unamortized debt issuance costs		(55,498	)		(59,381	)
Current maturities		(240,680	)		(277,666	)
Total	$	3,001,206		$	3,221,035

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NOTE 5 – RELATED PARTY TRANSACTIONS

BTND Trading

BTND Trading is an entity separate from the Company which is owned by certain significant shareholders of the Company, from time-to-time BTND Trading has advanced funds to the Company. At the June 28, 2020, $207,729 was due to BTND Trading at 8% annual interest. In August 2020, the amount due to BTND trading was repaid in full.

Next Gen Ice

In 2019, the Company made cash advances to Next Gen Ice, Inc. (NGI) in the form of Series C Notes totaling a principal amount of $179,000. The Company’s CEO, Gary Copperud, is Chairman of the Board of Directors of NGI and the Company’s Chief Operating Officer, Kenneth Brimmer, is also a member of the Board of Directors of NGI and serves as Chief Financial Officer of NGI on a part-time contract basis. Mr. Copperud, and a limited liability company controlled by him together own approximately 34% of the outstanding equity of NGI. On March 2, 2020, the Series C Notes, were modified and the maturity extended to August 31, 2020. As part of the Note modification, the Company received 179,000 shares of Common Stock in Next Gen Ice from the founders of NGI representing approximately 2% of NGI shares outstanding. The also Company holds warrants to purchase 358,000 shares at a price of $1.00 per share through March 31, 2023. The common stock and common stock purchase warrants received by the Company were recorded at a value determined by the Company of $75,000. This amount was also recorded at a discount to the note receivable and was recognized as interest income over the extended term of the Note. The Company has determined that its investment in NGI does not have a readily determinable market value and therefore is carried at the cost determined by the Company at the time the shares and warrants were received. The Series C Notes were repaid in August 2020, with interest, and currently there are no outstanding amounts due to the Company from NGI.

NOTE 6 – 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 aware of any significant asserted or potential claims which could impact its financial position.

NOTE 7 – COVID-19 PANDEMIC AND EMERGENCY LOAN RELIEF

On March 13, 2020, President Donald Trump declared a national emergency in response to the coronavirus (“Covid-19”) global pandemic. Covid-19 has had a significant adverse impact on the United States economy. While we have experienced some product shortages and some labor shortages, for the most part, we have continued to operate all of our locations on a drive-through basis only with some reduced hours and with some limited access to the walk-up window and any indoor seating. Indoor seating is only available in our Dairy Queen and one other location. In October we closed our Moorhead location for approximately 3 days as a result of confirmed case of Covid-19 and we performed a deep cleaning of the location and testing for the virus of our crewmembers before reopening, In November our Minot location was closed for two days as a result of positive Covid-19 tests by our employees. At this time, it is difficult to predict if the Company will face store closures in the future and the ultimate impact of the Covid-19 pandemic on the Company’s operating results, although given the drive-through nature of our locations, the impact has been positive so far. The situation and regulations surrounding government response to the pandemic are constantly changing and it is not possible to determine if the current business trends will continue.

On May 1, 2020, the Company received funding in connection with “Small Business Loans” under the federal Paycheck Protection Program (the “PPP”). Pursuant to the terms of the Promissory Notes dated May 1, 2020, by BTND and BTNDDQ, L.L.C. in favor of Northview Bank. BTND borrowed $418,900 original principal amount, and BTNDDQ, L.L.C. borrowed $41,500 original principal amount. Both PPP loans were funded on May 1, 2020. The PPP Loans bear interest at 1% per annum and mature in two years from the date of disbursement of funds. Interest and principal payments under the PPP Loans will be deferred for a period of six months. The PPP Loan contains certain covenants which, among other things, restrict the borrower’s use of the proceeds of the PPP Loan to the payment of payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other agreements with any creditor. Under the terms of the Program, we expect that the PPP Loans will be forgiven, and this outcome is reflected in the accompanying consolidated financial statements reflecting $460,400 as a grant and in included in Other Income.

On April 29, 2020, BTNDDQ, L.L.C. borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program from Central Minnesota Development Corporation. This loan is interest free and under certain conditions up to 50% of the loan may be forgiven, BTNDDQ, L.L.C., initially, is required to make 18 monthly payments of $458.33 beginning December 15, 2020, following the initial 18 months, in the event the note does not qualify for loan forgiveness, it will be repaid in equal installments over an additional 36 months.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion of financial condition, results of operations, liquidity and capital resources of BT Brands, Inc. and its wholly-owned subsidiaries (together, the “Company”) should be read in conjunction with the Company’s condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K for the year ended December 29, 2019.

Overview

We own and operate ten fast food restaurants, including nine Burger Time restaurants and one Dairy Queen restaurant, all of which are in the North Central region of the United States. Our Burger Time restaurants feature a wide variety of burgers and other affordably priced foods such as chicken sandwiches, pulled pork sandwiches, sides and soft drinks. Our Dairy Queen restaurant offers the established Dairy Queen menu consisting of burgers, chicken, sides, ice cream and other desserts, and a wide array of beverages. Our revenues are derived from the sale of food and beverages at our restaurants.

Our Burger Time operating principles include: (i) offering bigger burgers and more value for the money; (ii) offering a limited menu to permit attention to quality and speed of preparation; (iii) providing fast service by way of single and double drive-thru designs and a point-of-sale system that expedites the ordering and preparation process; and (iv) great tasting quality food made fresh to order at a fair price. Our primary strategy is to serve the drive-thru and take-out segment of the quick-service restaurant industry.

Business Trends; Effects of COVID-19 on our Business

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally. The spread of the virus has disrupted the normal operations of many businesses including ours. In response to this outbreak, many state and local authorities have mandated the temporary closure and partial closure of non-essential businesses including dine-in restaurant activity. While we have experienced some product shortages, for the most part, we have continued to operate all of our locations on a drive-through basis in some cases temporarily eliminating access to the walk-up service window and any indoor seating which is available at our Dairy Queen location and one other location. Also, most of our locations have outdoor picnic table seating for use in nicer summer weather, and generally these dining areas were closed earlier this year, however, have recently opened. In October we closed our Moorhead location for approximately 3 days as a result of confirmed case of the Coronavirus and we performed a deep cleaning of the location and testing of our crewmembers before reopening, In November 2020, we had a similar two-day closure of our Minot location. At this time, it is impossible to predict the near-term effects or the ultimate impact of the Covid-19 pandemic on the Company’s operating results and financial condition as the situation and regulations surrounding government response to the pandemic are constantly changing, however, to-date, the impact of restaurant closures and shelter in-place orders have generally been positive for our business as drive-through dining locations are an attractive alternative to consumers during a time of the reduced dining.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, providing aid small businesses through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The loan may be forgiven if the funds are used for payroll and other qualified expenses. Given the absence of any funding alternatives, the Company applied for and was granted loans totaling $460,400 under the United States Small Business Administration’s Payroll Protection Program. The Company has used these funds to meet payroll expenses and the Company expects and has applied to have the PPP loans forgiven as provided by the CARES Act. The Company’s BTNDDQ, L.L.C. subsidiary also received a $27,500 loan from a State of Minnesota Small Business Emergency Loan Program.

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Growth Strategy and Outlook

We are seeking to increase value for our shareholders in the foodservice industry. As the economy begins to stabilize, we expect to pursue the acquisition of multi-unit restaurant concepts and individual restaurant properties at attractive multiples of earnings. Once acquired, we will operate the business or businesses with a shared central management organization. Assuming we are successful in acquiring an operating business, following the acquisition, we expect to pursue growth strategies to both expand the number of locations and to increase comparable store sales and profits.

Our business plan is to grow through acquisitions in the foodservice industry. In addition, we may develop additional restaurant locations through the acquisition and conversion of existing properties. We also expect to identify and pursue the acquisition of existing restaurant units and multi-unit chains which could be operated and expanded through the addition of new locations. Our growth strategy is predicated upon (i) building or acquiring new restaurants, (ii) growing comparable restaurant sales and profits, and (iii) quickly and cost-effectively scaling our growth while leveraging our corporate services.

In the wake of the COVID pandemic, we believe that we will have opportunities to acquire restaurant businesses at attractive valuations. We intend to follow a disciplined strategy of evaluating acquisition opportunities to determine the operations are in markets and possess qualities meeting our demographic, real estate and investment criteria. Our ability to successfully evaluate an acquisition opportunity and to understand the competitive landscape of a new market will be critical in making a successful acquisition. Additionally, our ability to identify, recruit and hire both salaried and hourly staff will impact our ability to expand as will changes in the legal environment, including increases to the minimum wage, which could impact our ability to expand into certain areas. Further, we believe that prior to the effects of the Pandemic, there was an oversaturation of restaurants and many of these restaurants may no longer be economically viable. Even if we can acquire restaurants, the new restaurants, and our Company, will be subject to various risks, some of which, including factors impacting our customers, such as declining economic conditions, are entirely out of our control. We will seek to quickly and cost-effectively scale our growth by leveraging our general and administrative costs.

References below to “Fiscal 2020” are for the periods ended during the 2020 fiscal year and to “Fiscal 2019” are for the periods ended during the 2019 fiscal year.

Results of Operations for the Thirteen Weeks Ended September 27, 2020 and the Thirteen Weeks Ended September 29, 2019

The following table sets forth, for the fiscal periods indicated, our Condensed Statements of Operations expressed as percentage of total revenues. Percentages below may not reconcile because of rounding.

	13 Weeks Ended,
	September 27, 2020			September 29, 2019
SALES		100.0	%		100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs		36.4	%		39.3	%
Labor costs		26.3	%		30.8	%
Occupancy costs		7.2	%		5.8	%
Other operating expenses		5.1	%		8.4	%
Depreciation and amortization		2.1	%		2.8	%
Impairment of assets held for sale		0.0	%		0.0	%
General and administrative		7.9	%		7.3	%
Total costs and expenses		85.0	%		94.4	%
Income (loss) from operations		15.0	%		5.6	%
INTEREST INCOME		0.0	%		0.0	%
OTHER INCOME		0.0	%		0.0	%
INTEREST EXPENSE		-1.2	%		-4.0	%
INCOME BEFORE TAXES		13.8	%		1.6	%
PROVISION FOR INCOME TAXES		-3.6	%		0.0	%
NET INCOME		10.2	%		1.6	%

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Net Revenues:

Net sales for Fiscal third quarter of 2020 increased $524,287 or 28.3% to $2,374,454 from $1,850,167 in Fiscal 2019. The sales increase was principally the result of favorable impact on our drive-through locations of the COVID-19 government restrictions on restaurants resulting in an increase in consumers choosing Burger Time as a dining alternative. In addition, the Company implemented a price increase in the third quarter which increased sales an estimated 5% to 10%.

Restaurant unit sales for the period ranged from a low of $156,700 to a high of $299,000 and average sales for each Burger Time unit during the period was approximately $217,300 in 2020 an increase from $170,400 in 2019.

Costs of Sales - food and paper:

Cost of sales - food and paper for third quarter of fiscal 2020 decreased as a percentage of sales to 36.4% of restaurant sales from 39.3% of restaurant sales in the third quarter of fiscal 2019. This decrease was the result of a favorable six-month fixed price on the price of ground beef patties at $2.51 per pound.

Restaurant Operating Costs:

Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, impairment charges and depreciation and amortization) as a percent of restaurant sales decreased significantly to 75.0% of sales in the third fiscal quarter of 2020 from 84.4% in the same period of fiscal 2019. This was due primarily to significant increase in sales which favorably impacted both fixed and semi-fixed costs and the matters discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.

Labor Costs:

For the third quarter of fiscal 2020, labor and benefits costs increased by $54,476 to $624,696, however, labor costs as a percentage of sales declined to 26.3% of restaurant sales from 30.5% of restaurant sales in fiscal 2019 third quarter. The decrease in the percentage was the result of the leveraging of existing staffing levels as sales increased significantly from the year earlier. 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 in nature, meaning that they do not decrease proportionally to decreases in revenue, thus they increase as a percentage of restaurant sales when there is a decrease in restaurant sales.

Occupancy and Other Operating Expenses

For the third fiscal quarter of 2020, occupancy and other expenses increased $27,714 to 12.3% of sales or $291,936 from $264,222 (14.2% of restaurant sales) in similar period in 2019.

Depreciation and Amortization Expense:

For third fiscal quarter of 2020, depreciation and amortization decreased $1,409 to $49,688 (2.1% of sales) from $51,097 (2.8% of sales) in the same period in fiscal of 2019.

General and Administrative Costs

General and administrative costs increased 38.8% or $52,597 from $135,695 (7.3% of sales) in the third fiscal quarter of 2019 to $188,292 (7.9% of sales) in the third quarter of 2020. The increase in general and administrative costs is primarily attributable to bonus paid to the CEO in third quarter and an increase in CEO compensation.

Income from Operations

Income from operations for the 13-week period was $355,865 in fiscal 2020 compared to income from operations of $101,388 in the similar period in 2019. The change in income from operations in fiscal 2020 compared to fiscal 2019 was due to the significant increase in profitability of the Company’s stores partially offset by an increase in General and Administrative Expense and the matters discussed in the “Net Revenues” and “Restaurant Operating Costs” sections above.

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Restaurant-level EBITDA:

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses restaurant-level EBITDA, which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, to investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not, however, indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute for, or superior to, operating income, which is calculated in accordance with GAAP, and the reconciliations to operating income set forth below should be carefully evaluated.

We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization and impairment charges. General and administrative costs are excluded as they are generally not specifically identifiable to restaurant specific costs. Depreciation and amortization and impairment charges are excluded because they are not ongoing controllable cash expenses, and they are not related to the health of ongoing operations.

	13-Week Period
	September 29, 2020			September 27, 2019
Revenues	$	2,374,454		$	1,850,167
Reconciliation:
Income from operations		355,865			112,664
Depreciation and amortization		49,668
General and administrative, corporate level expenses		188,292			135,695
Restaurant-level EBITDA		596,825			299,456
Restaurant-level EBITDA margin		25.1	%		16.2	%

Results of Operations for the Thirty-Nine Weeks Ended September 27, 2020 and the Thirty-Nine Weeks Ended September 29, 2019

	39 Weeks Ended,
	September 27, 2020			September 29, 2019
SALES		100.0	%		100.0	%
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs		37.9	%		39.5	%
Labor costs		28.3	%		31.7	%
Occupancy costs		8.3	%		9.6	%
Other operating expenses		5.2	%		6.0	%
Depreciation and amortization		2.3	%		3.4	%
Impairment of assets held for sale		1.6	%		1.8	%
General and administrative		6.1	%		8.3	%
Total costs and expenses		89.7	%		100.4	%
Income (loss) from operations		10.3	%		-0.4	%
INTEREST INCOME		1.5	%		0.0	%
OTHER INCOME		7.7	%		0.0	%
INTEREST EXPENSE		-2.2	%		-3.1	%
INCOME (LOSS) BEFORE TAXES		17.3	%		-3.5	%
PROVISION FOR INCOME TAXES		-3.9	%		0.0	%
NET INCOME (LOSS)		13.4	%		-3.5	%

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Net Revenues:

Net sales for 39-week period representing the first three fiscal quarters of 2020 increased $958,061 or 18.7% to $6,074,222 from $5,116,161 in fiscal 2019. The increase in sales was principally the result of favorable impact in on our drive-through locations of the COVID-19 government restricts on dining alternatives resulting in consumers choosing Burger Time combined with generally favorable weather conditions during the period.

Restaurant sales for the 39-week period for our Burger Time locations ranged from a low of $387,661 to high of $776,185 and average sales for each Burger Time unit during the period was approximately $556,000 in 2020 an increase from $476,600 in 2019.

Costs of Sales - food and paper:

Cost of sales - food and paper for the first half of fiscal 2020 decreased as a percentage of sales slightly to 37.9% of restaurant sales from 39.5% of restaurant sales in the similar period in 2019. This decrease was mainly the result of the overall increase in business activity combined with a relatively stable cost environment with average beef prices of approximately of $2.51 per pound in 2020 and a menu price increase taken near the beginning of the third quarter.

Restaurant Operating Costs:

Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, impairment charge and depreciation and amortization) as a percent of restaurant sales declined to 79.7% of sales in fiscal 2020 from 86.8% in fiscal 2019. This was due primarily to the increase in sales activity and its impact as further discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.

Labor Costs:

For Fiscal 2020, labor and benefits costs decreased to 28.3% of restaurant sales from 31.7% of restaurant sales in Fiscal 2019. The Company was able to favorably leverage staffing levels against the significant increase in volume during the second half of the period. 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 in nature, meaning that they do not decrease proportionally to decreases in revenue, thus they increase as a percentage of restaurant sales when there is a decrease in restaurant sales.

Occupancy and Other Operating Expenses

For the first 26 weeks of Fiscal 2020, occupancy and other expenses increased $18,989 representing 13.5% of sales or $817,243 from $798,257 (15.6% of restaurant sales) in the similar period in 2019. Many of these costs are fixed and the lower percentage reflect the increase in restaurant sales.

Depreciation and Amortization Expense:

Depreciation and amortization expense declined 18.1% or $30,975 to $140,588 (2.3% of sales) from $169,668 (3.3% of sales) in fiscal 2019 as more of the Company’s fixed assets became fully depreciated.

General and Administrative Costs:

General and administrative costs decreased 11.2% or $57,408 from $428,863 (8.2% of sales) in the 39-week period of fiscal 2019 to $371,455 (6.1% of sales). The decrease in general and administrative costs is primarily attributable to the elimination of a general manager position offset by higher CEO compensation in the fiscal third quarter period.

Income (loss) from Operations

The income from operations was $626,244 in the 39-week period of fiscal 2020 compared to a loss from operations of $19,587 in same period of fiscal 2019. The change in income from operations in fiscal 2020 compared to fiscal 20120 was due primarily to the reduction in General and Administrative Expense and the matters discussed in the “Net Revenues” and “Restaurant Operating Costs” sections above.

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Restaurant-level EBITDA:

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses restaurant-level EBITDA, which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, to investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. This measure is not, however, indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute for, or superior to, operating income, which is calculated in accordance with GAAP, and the reconciliations to operating income set forth below should be carefully evaluated.

We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization and impairment charges. General and administrative costs are excluded as they are generally not specifically identifiable to restaurant specific costs. Depreciation and amortization and impairment charges are excluded because they are not ongoing controllable cash expenses, and they are not related to the health of ongoing operations.

	39-Week Period
	September 27, 2020			September 29, 2019
Revenues	$	6,074,222		$	5,116,161
Reconciliation:
Income (Loss) from operations		626,244			(19,587	)
Depreciation and amortization		140,588			171,563
General and administrative, corporate level expenses		371,455			426,968
Restaurant-level EBITDA		1,138,287			618,113
Restaurant-level EBITDA margin		18.7	%		12.1	%

Liquidity and Capital Resources

The condensed consolidated financial statements have been prepared on a going concern basis. The Company’s overall liquidity has improved from a year ago. For the 39 weeks ended September 27, 2020, the Company earned an after-tax profit of $815,362. On September 27, 2020, the Company had $1,393,263 in cash and working capital of $371,190 an increase of $862,517 from the year-end deficit of $468,327. Covid-19 is having a significant adverse impact on the United States economy. It is difficult to predict the ultimate impact of the Covid-19 pandemic on the Company’s operating results and financial condition.

The coronavirus global pandemic is significantly harming the United States economy. Many businesses have closed, and many businesses are subject to government restrictions. In addition, many people are limiting activities outside of the home. At this time, all of our units continue to operate, however, it is impossible to predict the near-term effects or the ultimate impact of the Covid-19 pandemic on the Company’s operating results and financial condition as the situation is rapidly evolving. A cash flow forecast for the next 12 months prepared by management has been adjusted to reflect recent offers by banks, in the wake of the COVID-19 Pandemic, including the Company’s principal lenders, Northview Bank and Bremer Bank, to abate all loan payments for the next three months. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, and additional avenues of relief may be available to small businesses through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. Given the absence of any funding alternatives, the Company applied for and was granted loans totaling $460,400 under the Small Business Administration Payroll Protection Program. The Company expects to use these funds to meet payroll expenses. The Company’s BTNDDQ, L.L.C. subsidiary also received a $27,500 no-interest loan from a State of Minnesota Small Business Emergency loan program. The Company expects to have sufficient cash assets to meet its obligations for the next twelve months.

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Qualitative and Quantitative Disclosure about Market Risk

Commodity Price Risk

We are subject to volatility in food costs as a result of market risk associated with commodity prices. Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate. We do not enter into pricing agreements with any of our suppliers to manage these risks. Beef is our largest single food purchase and the price we pay for beef fluctuates weekly based on beef commodity prices. We do not currently manage this risk with commodity future and option contracts. A ten percent increase in the cost of beef would result in approximately $175,000 of additional food costs for the Company annually.

Seasonality and Inflation

Seasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically slightly lower in the first and fourth quarters due to holiday closures and the impact of cold weather at all our locations. Adverse weather conditions may also affect customer traffic, especially in the first and fourth quarters, when customers do not use our outdoor seating areas, which impacts the use of these areas and may adversely affect our revenue.

Management does not believe that inflation has had a material effect on income during the recent years. Increases in food, labor or other operating costs could adversely affect the Company’s operations. In the past, however, the Company generally has been able to increase menu prices or modify its operating procedures to substantially offset increases in its operating costs.

The cost of construction has also increased in recent history. We expect that costs to construct new restaurants in our existing and contiguous markets will be more expensive than several years ago, but we expect to achieve higher restaurant sales volumes and/or margin improvements to offset these or addition construction cost increases. Construction cost increases could have an adverse effect on our business and operations, particularly for new restaurant development.

Our business is subject to a wide range of federal, state and local regulations, which are subject to change in ways we cannot now anticipate. We are uncertain as to the effect, if any, that changes in the regulatory environment may have on our Company.

Off-Balance Sheet Arrangements

We did not have during 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 to our financial statements and our results of operations and financial condition as the result of the adoption of Recent Accounting Pronouncements, see “Part I, Item 1, Note 1. Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements included in this quarterly report.

Critical Accounting Policies and Estimates

Our discussion and analysis of operating results and financial condition are based upon our financial statements. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

Our critical accounting policies are those that materially affect our financial statements and involve subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates.

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Jumpstart Our Business Startups Act of 2012

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may take advantage of these exemptions until we are no longer an emerging growth company. We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART 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

During the 13-week period ended September 27, 2020, the Company did not sell any securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During fiscal 2017 and 2018, BTND Trading, LLC., an affiliate of the Company by virtue of common ownership, advanced funds to the Company for working capital purposes. At June 28, 2020, the company was indebted to BTND Trading in the amount of $207,729, which the Company paid in full in August 2020.

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ITEM 6. EXHIBITS.

Exhibit	Description
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 September 27, 2020.
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’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2020.
32.1*	Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
32.2*	Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

_______________ 

* In accordance with Item 601 of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.

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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: November 9, 2020	By:	/s/ Kenneth Brimmer
	Name:	Kenneth Brimmer
	Title:	Chief Operating Officer and Principal Financial Officer

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