What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-18 compared with 2021-05-18 · 175 added, 87 removed, 123 unchanged (68% of the section changed)

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Our primary strategy is to serve the drive-thru and take-out segment of the quick-service restaurant industry.

Operationally, we take several steps to maintain efficiency, including maintaining inventory of no more than approximately $5,000 to $10,000 per store at any given time (which also has the advantage of allowing for frequent deliveries of fresh food).

Our Burger Time investment model targets an average total cash investment of between $325,000 and $535,000.

Real estate and finance costs may vary materially by location but, assuming the average investment figure applies, the amount allocated to the purchase of real estate would be approximately $225,000.

These costs can fluctuate significantly, based on the number and timing of restaurant openings and the specific expenses incurred for each restaurant.

Our average customer transaction increased by approximately 4% in the fiscal 2020 compared to 2019 principally because of the price increase implemented in the middle of 2020.

Operationally, we take several steps to maintain efficiency, including maintaining inventory of approximately $5,000 to $15,000 per store at any given time (which also has the advantage of allowing for frequent deliveries of fresh food).

Historically, our Burger Time investment model targeted an average total cash investment of between $325,000 and $535,000.

Real estate and finance costs vary materially by location but, assuming the average investment figure applies, the amount allocated to the purchase of real estate would be approximately $225,000.

Our average customer transaction increased by approximately 4% in the first six months of fiscal 2021 compared to 2020 and currently is approximately $11.50.

This recent increase is principally because of a menu price increase implemented in the middle of 2020.

Our sales trends are influenced by many factors and the environment remains challenging for smaller restaurant chains as competition from the major fast-food hamburger-focused business is intense.

Material Trends and Uncertainties

There are industry trends which may have a significant adverse effect on our business.

There are industry trends which may have an impact on our business.

These trends principally relate to the rapidly changing area of technology and food delivery.

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We expect these trends to continue as restaurants aggressively complete for customers.

Further, the major QSR’s have been increasingly willing to strategically discount prices through promotions such as a “dollar menu”.

We expect these significant trends will continue.

The cost of food has increased over the last two years;

however, we expect to see some inflationary pressure in 2021.

Beef costs were stable in 2020 following an increase of approximately 5% in 2019.

Further, the major industry participants have continued to strategically discount prices through promotions such as a “dollar menu.” We expect these significant trends will continue.

The cost of food has increased over the last two years, and we expect to see continued inflationary pressure in the remainder of 2021.

Beef costs were stable in 2020 and recently have increased by approximately 4% per pound following an increase of approximately 5% in 2019.

Given the competitive nature of the fast-food burger restaurant industry, it may be difficult to raise menu prices to fully cover future cost increases.

During 2020, a significant increase in business volume contributed to improved profit margins.

During 2020 and continuing into 2021, a significant increase in business volume contributed to improved profit margins.

Additional margin improvements may have to be made through operational improvements, equipment advances and increased volumes to help offset any food cost increases, due to the competitive state of the restaurant industry.

Labor will continue to be a critical factor in the foreseeable future.

In most areas where we operate our restaurants, there historically has been a shortage of suitable labor.

Labor is a critical factor in operating our stores.

In most areas where we operate our restaurants, there historically has been a shortage of suitable labor and recently, securing staff for restaurant has become more challenging.

This has resulted in higher wages as the competition for employees intensifies, not only in the restaurant industry, but in practically all retail and service industries.

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Increases in the federally and state mandated minimum wage may also impact our operations.

While details have not been determined the initial proposal by the Biden Administration includes a proposal to increase the minimum wage to $15 per hour.

A variety of proposals have been made to increase the federal minimum wage to $15 per hour and state and local governments have, in some cases, implemented minimum wage rates.

In North Dakota, the minimum wage is set at the federally mandated minimum wage of $7.25 per hour and the rates are annually adjusted to reflect any increase in cost of living.

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An increase in the minimum wage to $15 per hour would adversely impact our profit margins.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic.

A health pandemic is a disease outbreak that spreads rapidly and widely by infection and affects many individuals in an area or population at the same time.

This contagious disease outbreak, which increases and decreases in intensity, and any related adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, potentially leading to an economic downturn.

Our stores have remained open for drive-through business.

The response to COVID-19 has disrupted the normal operations of many businesses, including ours.

Since March 2020, we have faced the effects of the COVID-19 and its more recent variants as a global pandemic which has been both unpredictable and persistent, The COVID-19 pandemic has adversely affected workforces, customers, economies, and financial markets globally and has disrupted the normal flow the US economy.

Our stores have, for the most part, remained open for drive-through business during the last year, however, many businesses experienced a disruption of normal operations.

More recently, food service businesses, including ours, have faced challenges in attracting and hiring workers and it is possible the labor shortages may become more acute in the busier summer months.

Most states, including Minnesota and North Dakota, have limited or banned public gatherings to halt or delay the spread of disease.

Under these emergency orders, essential services have remained open, including, but not limited to gas stations, pharmacies, grocery stores, food banks, convenience stores, take-out and delivery restaurants, banks, hospitals, and laundromats.

Under the directions limiting public gatherings, regulators have generally allowed drive-through restaurant services to remain open.

In 2020 extending through early 2021, many states, including Minnesota, mandated limited public gatherings to halt or delay the spread of disease.

Under these emergency orders, essential services remained open, including, but not limited to gas stations, pharmacies, grocery stores, food banks, convenience stores, take-out and delivery restaurants, banks, hospitals, and laundromats.

Under the directions limiting public gatherings, regulators generally allowed drive-through restaurant services to remain open.

To date, our restaurants have remained open although we have curtailed hours at some stores and have experienced temporary restaurant closures while locations have been cleaned and employees tested.

Thus far, we have been able to reopen after two or three days.

Local, regional or national governments may, at any time, implement directives that further limit or order our business to close or take other measures intended to mitigate the spread of disease.

Further, customers may choose to remain in self-imposed isolation and avoid public gathering places.

Local, regional or national governments may, at any time, implement directives that limit or order our business to close or take other measures intended to mitigate the spread of disease.

Further, some customers may choose to remain in self-imposed isolation and avoid public gathering places.

While a program to vaccinate a majority of Americans is currently in progress, it is not possible for us to predict the duration or magnitude of the effects of the outbreak and its impact on our business or results of operations at this time.

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Even if such measures are not implemented, the perceived risk of infection or significant health risk may adversely affect our business.

We expect to continue to navigate an unprecedented time for our business and industry.

As the restrictions on behavior eased with approved vaccines being distributed and administered, all the states in which we operate have lifted mandatory mask mandates and we expect that, in most respects, restaurant industry operations will return to pre-pandemic norms.

Our restaurants may revert to more typical pre-pandemic operations and revenues which may result in sales declines from recent levels.

We may be subject to additional competition, as many restaurants initiated take home and delivery services during the pandemic and customers may have grown accustomed to a wider range of take-out foods beyond quick-service restaurant (QSR) options, which would negatively impact our revenue.

We continue to monitor the course of the pandemic and its impact on our customer base and the wider country.

It is not possible for us to predict the future course of the pandemic in light of a multitude of factors, including the spread of new variants of the original coronavirus disease among the U.S.

population and the efficacy of existing treatments and vaccines.

Future conditions may influence restaurant customer traffic and our ability to adequately 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 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 focused on growing our business and building value for our shareholders.

We are seeking to increase value for our shareholders in the foodservice industry.

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 Burger Time locations through the acquisition and conversion of existing properties.

We also expect to identify and complete acquisitions 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.

We believe that we will have opportunities to acquire new restaurant businesses.

We intend to follow a disciplined strategy of evaluating acquisition opportunities to determine the operations are in markets 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 there has been an oversaturation of restaurants in certain areas which could decrease the number of markets that we believe will be attractive to expand into.

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.

Our principal strategy comprises acquiring multi-unit restaurant concepts and individual restaurant properties at attractive multiples of earnings.

Though we do not currently plan to do so, under certain circumstances, we may develop additional Burger Time locations through the acquisition and conversion of existing properties.

Other key elements of our growth strategy encompass increasing same store sales and introducing a campaign to boost brand awareness.

Expansion Through Acquisitions

We intend to make strategic and opportunistic acquisitions that provide an entrance into targeted restaurant segments and geographic areas.

Restaurant businesses become available for acquisition frequently and we believe that we may be able to purchase either individual restaurant properties or multi-unit businesses at prices providing an attractive return on our investment.

Alternatively, we may acquire operating assets where a franchise program of the acquired foodservice business is concluded by management to be the most appropriate growth plan.

We intend to follow a disciplined strategy of evaluating acquisition opportunities that seek to 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 distinct opportunity:

the value proposition offered by acquisition targets when comparing the purchase price to the potential return on our investment;

established, recognized brands within their geographic footprint;

steady cash flow;

track records of long-term operating performance;

sustainable operating results;

geographic diversification;

growth potential.

Assuming we are successful in acquiring new businesses, we will operate the business or businesses with a shared central management organization.

Following the acquisition, we expect to pursue a growth plan to both expand the number of locations and to increase comparable store sales and profits, as described below.

We anticipate that by leveraging our management services platform, we will be able to achieve post-acquisition cost benefits by reducing the corporate overhead of the acquired business.

If we acquire one or more restaurant chains or individual units in close proximity to each other, we believe the concentration of operations will provide economic synergies with respect to management functions, marketing and advertising, supply chain assistance, staff training and operational oversight.

Future Development of Additional Burger Time Restaurants

We may, in certain circumstances, consider developing additional Burger Time location.

Conditions which might give rise to developing additional Burger Time locations include the opportunity to acquire and convert a property that previously had operated as a fast-food establishment at a highly attractive price in a location that fits naturally within Burger Time’s geographic footprint so that we may share service expenses, including advertising costs.

If we elect to open additional Burger Time restaurants, we expect that development of these restaurants will, based on our experience, require a minimum six to nine months after opening, to achieve the targeted restaurant-level sales and operating margins.

In a case where we open a restaurant in new and untested markets, achieving targeted sales may take longer since the local population will not be familiar with our brand and building brand awareness takes time.

How quickly new restaurants achieve their targeted sales and operating margin depends on many factors, including the level of consumer familiarity with our brand, as well as the availability of experienced managers and other staff.

However, every restaurant has a unique opening sales pattern, and this pattern is difficult to predict.

Increase Same-Store Sales

Same-store sales growth reflects the change in year-over-year sales for the comparable store base.

We intend to deploy a multi-faceted same-store sales growth strategy to optimize restaurant performance.

We will apply techniques proven in the restaurant industry to increase same store sales at our Burger Time restaurants and at our acquired properties and to develop new approaches that reflect our corporate character and restaurant composition.

We expect to utilize customer feedback and analyze sales data to introduce, test and hone existing and new menu items.

In addition, we will investigate utilizing public relations and experiential marketing to engage customers.

We expect that our strategies to increase same-store sales will evolve as we acquire new restaurant concepts in new markets.

Increase Brand Awareness

We appreciate that increasing brand awareness is important to the growth of our Company.

We will develop and implement forward-looking branding strategies both for our Burger Time concept and for any businesses that we acquire.

We will seek to 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 will deploy internet advertising to match specific menu items targeted to specific demographic groups.

We will deploy cross-over ads with radio and social media interacting with each other.

We expect that our branding initiatives will evolve as we consummate acquisitions of restaurant concepts that appeal to distinct consumer markets in differing geographic areas.

Our ability to acquire or open new restaurants is predicated on the availability of capital for such purposes.

We cannot be certain that capital will be available to us on acceptable terms if at all.

Results of Operations for the Thirteen Weeks Ended April 4, 2021 and the Thirteen Weeks Ended March 29, 2020

Results of Operations for the Thirteen Weeks Ended July 4, 2021, and the Thirteen Weeks Ended June 28, 2020

The following table sets forth, for the fiscal periods indicated, our Condensed Statements of Operations expressed as percentage of total revenues.

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COSTS AND EXPENSES

Restaurant operating expenses

Food and paper costs

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Depreciation and amortization

Impairment of assets held for sale

General and administrative

Total costs and expenses

Income (loss) from operations

Income from operations

INTEREST EXPENSE

INCOME (LOSS) BEFORE TAXES

PROVISION FOR INCOME TAXES

NET INCOME (LOSS)

INTEREST INCOME

OTHER INCOME (PAYROLL PROTECTION GRANT)

Net Revenues:

Net sales for Fiscal first quarter of 2021 increased $637,442 or 48.9% to $1,940,872 from $1,303,430 in the first quarter of Fiscal 2020.

The sales increase was attributable principally to the favorable impact on our drive-through locations because of the COVID-19 related 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 second half of 2020 which increased sales an estimated 5% to 10%.

Restaurant unit sales for the period ranged from a low of $126,000 to a high of $274,000 and average sales for each Burger Time unit during the period was approximately $201,300 in 2021 an increase from approximately $141,000 in 2020.

Net sales for fiscal second quarter of 2021 decreased $13,655 to $2,382,683 from $2,396,338 in fiscal 2020.

Sales in 2021 have continued to be strong.

We have held most of the gains realized during the period of significant dining restrictions resulting in a favorable impact on drive-through locations.

This continuing trend has led to an increase in consumers choosing Burger Time as a meal alternative.

Restaurant unit sales for the 13-week period ranged from a low of approximately $154,000 to a high of approximately $312,500 and average sales for each Burger Time unit during the period was approximately $237,200 in 2021 essentially unchanged from the same period in 2020.

Costs of Sales - food and paper:

Cost of sales - food and paper for first quarter of fiscal 2021 decreased as a percentage of sales to 37.7% of restaurant sales from 41.4% of restaurant sales in the first quarter of fiscal 2020.

This decrease was the result of a favorable six-month price on the price of ground beef patties which remained unchanged at $2.51 per pound.

Cost of sales - food and paper for second quarter of fiscal 2021 increased as a percentage of sales to 38.1% of restaurant sales from 37.3% of restaurant sales in the second quarter of fiscal 2020.

This increase was the net result of inflationary pressures of certain items, a favorable six-month verbal fixed price arrangement on the price of ground beef patties at $2.51 per pound which more recently has increased to $2.61 per pound, offset by the impact of a price increase taken at the end of second quarter in 2020 fully realized in 2021.

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, and depreciation and amortization) as a percent of restaurant sales decreased significantly to 80.2% of sales in the first fiscal quarter of 2021 from 97.6% in the same period of fiscal 2020.

This decrease was due primarily to a 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.

For the first quarter of fiscal 2021, labor and benefits costs increased by $82,183 to $565,492, however, labor costs as a percentage of sales declined to 29.1% of restaurant sales from 37.1% of restaurant sales in fiscal 2020 first 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 change proportionally to changes in revenue.

Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, impairment charges and depreciation and amortization) as a percent of restaurant sales increased to 76.6% of sales in the second fiscal quarter of 2021 from 74.4% in similar period of fiscal 2020.

This was due to the net effect of the higher cost incurred for personal protection equipment, the impact of the 2020 price increase, offset by tighter labor markets and the matters discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.

For the second quarter of fiscal 2021, labor and benefits costs increased slightly by $10,529 to $621,227 and increased as a percentage of sales to 26.1% of restaurant sales from 25.5% of restaurant sales in fiscal 2020.

The increase in the percentage was the result of tighter labor markets leading to higher hourly wage costs offset by the leveraging of existing staffing.

Payroll costs are semi-variable in nature, meaning that they do not decrease proportionally to decreases in revenue, thus they increase as a percentage of restaurant sales when there is a decrease in restaurant sales.

Occupancy and Other Operating Expenses

For the first fiscal quarter of 2021, occupancy and other expenses increased $10,995, however, as a result of the increased sales volume, these costs as a percentage of sales declined to 13.4% of sales from 19.1% of sales in the similar period in 2020.

For the second fiscal quarter of 2021, occupancy and other expenses increased $14,430 to $295,978 (12.4% of sales) in 2021 from 11.6% of sales in similar period in 2020.

Depreciation and Amortization Expense:

For first fiscal quarter of 2021, depreciation and amortization increased $10,016 to $54,836 (2.8 % of sales) from $44, 822 (3.4% of sales) in the same period in fiscal of 2020.

The company continues to reinvest in its properties to maintain and upgrade items such as point-of-sale equipment and HVAC equipment.

For second fiscal quarter of 2021, depreciation and amortization increased $12,458 to $58,558 (2.5% of sales) from $46,100 (1.9% of sales) in the second quarter of fiscal 2020.

General and Administrative Costs

General and administrative costs increased 59.1% or $39,122 from $66,216 (5.1% of sales) in the first fiscal quarter of 2020 to $105,338 (5.5% of sales) in the first quarter of 2021.

The increase in general and administrative costs is primarily an increase in CEO compensation over the year earlier level.

General and administrative costs decreased $1,303 from $116,947 (4.9% of sales) to $115,644 (4.9% of sales) in the second fiscal quarter of 2021.

Income from Operations

Income from operations for the 13-week period was $223,495 in fiscal 2021 compared to a loss from operations of $116,244 in the similar period in 2020.

The change in income from operations in fiscal 2021 compared to fiscal 2020 was due to the significant increase in profitability of the Company’s stores resulting from an increase in sales, partially offset by an increase in General and Administrative Expense and the matters discussed in the “Net Revenues” and “Restaurant Operating Costs” sections above.

The income from operations for the 13 week-period was $382,516 in fiscal 2021 compared to an income from operations of $350,156 in similar period in 2020.

The increase in the percentage of income from operations to 16.0% in fiscal 2021 compared to 14.6% fiscal 2020 was principally the result of a $100,000 impairment charge in the 2020 period to reduce the carrying value of property held for sale and the matters discussed in the “Net Revenues” and “Restaurant Operating Costs” sections above.

Restaurant-level EBITDA:

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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, and depreciation and amortization.

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 are excluded because they are not ongoing controllable cash expenses, and they are not related to the health of ongoing operations.

13-Week Period

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 Weeks Ended,

Reconciliation:

Income (loss) from operations

Income from operations

Depreciation and amortization and impairment charge

General and administrative, corporate level expenses

Restaurant-level EBITDA

Restaurant-level EBITDA margin

Our Results of Operations for the Twenty-Six Weeks Ended July 4, 2021 and the Twenty-Six Weeks Ended June 28, 2020

26 Weeks Ended,

COSTS AND EXPENSES

Restaurant operating expenses

Food and paper costs

Occupancy costs

Other operating expenses

Depreciation and amortization

Impairment of assets held for sale

General and administrative

Total costs and expenses

Income from operations

INTEREST EXPENSE

INTEREST INCOME

OTHER INCOME – PAYROLL PROTECTION GRANT

Net Revenues:

Net sales for 26-week period representing the first half of fiscal 2021 increased $623,787 or 16.9% to $4,323,555 from $3,699,768 in fiscal 2020.

The increase in sales was principally the result of favorable impact in the first half of the 26-week period the government shutdown restrictions on social gatherings for dining alternatives resulting in consumers choosing Burger Time as a meal alternative combined with generally favorable weather conditions during the period.

Restaurant sales for the 26-week period for our Burger Time locations ranged from a low of approximately $280,300 to high of approximately $587,600 and average sales for each Burger Time unit during the period was approximately $438,200 in 2021 an increase from approximately $382,300 in same 26-week period in 2020.

Costs of Sales - food and paper:

Cost of sales - food and paper for the first half of fiscal 2021 decreased as a percentage of sales to 37.9% from 38.8% of restaurant sales in the similar period in 2020.

This decrease was mainly due to combined effects of second half 2020 menu price increase and the overall increase in business activity supported by a relatively stable market for ground beef and other products.

Average beef prices paid by the Company were approximately of $2.51 per pound in 2021 which was unchanged from 2020 contributing to an improved gross margin.

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 78.2% of sales in 2021 from 82.6% in fiscal 2020.

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.

For the first half of fiscal 2021, labor and benefits costs decreased to 27.5% of restaurant sales from 29.6% of restaurant sales in the fiscal 2020 period.

The Company was able to favorably leverage staffing levels against the significant increase in volume during the second half of the period.

While the hiring markets have become more challenging in terms of filling open positions, the Company continued to benefit from limited turnover in its unit restaurant management which tends to cause unfavorable variations in labor costs.

Occupancy and Other Operating Expenses

For the first 26 weeks of fiscal 2021, occupancy and other expenses increased $30,428 or 12.8% of sales to $555,735 from $525,307 (14.2% of restaurant sales) in the similar period in 2020 many of these costs are fixed and the lower percentage reflect the increase in restaurant sales, this was offset by an increased focus on maintenance projects resulting from very high volume at our stores impacting our major systems such as HVAC and refrigeration.

Depreciation and Amortization Expense:

Depreciation and amortization expense in the first half of fiscal 2021 increased by $22,474 to $113,394 (2.6% of sales) from $90,920 (2.4% of sales) in the first half of fiscal 2020 and is the result of capital additions at several of our locations.

General and Administrative Costs

General and administrative costs increased 20.6%, or $37,819, from $183,163 (5.0% of sales) in the first half of fiscal 2020 to $220,982 (5.1% of sales) for the first half of fiscal 2021.

Income from Operations

Income from operations was $610,672 in the first half of fiscal 2021 compared to $270,379 in the first half of fiscal 2020.

The change in income from operations in the first half of fiscal 2021 compared to fiscal 2020 was due primarily to the impact of the 2020 impairment charge, continued robust sales activity and the matters discussed in the “Net Revenues” and “Restaurant Operating Costs” sections above.

Restaurant-level EBITDA :

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses restaurant-level EBITDA, which is not a measure defined by GAAP.

This non-GAAP operating measure is useful to both management and, we believe, to investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations.

This measure is not, however, indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses.

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.

26 Weeks Ended,

Reconciliation:

Income from operations

Depreciation and amortization and impairment charge

General and administrative, corporate level expenses

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Since March of 2020, the COVID-19 pandemic has had a positive impact of the Company’s sales and liquidity.

For the 53 weeks ended January 3, 2021, the Company earned an after-tax profit of $791,992.

On April 4, 2021 the Company had $1,460,098 in cash and working capital of $296,321, a decrease of $21,628 from January 3, 2021.

The decrease is the result of including $182,000 in current maturities of long-term debt from the Company’s early payoff of the mortgage on its West St.

Paul location at the beginning of the second fiscal quarter.

In the 13-week period ending April 4, 2021, the Company continued to see strong results and positive operating cash flow.

COVID-19 likely will to continue to have a significant impact on the United States economy.

For the 26 weeks ended July 4, 2021, the Company earned an after-tax profit of $347,440.

On July 4, 2021, the Company had $1,720,917 in cash and working capital of $898,303 an increase of $526,610 from January 3, 2021.

The is partially the result of Company completing a refinancing of the mortgages covering all its Burger Time properties including approximately $185,000 of current maturities of long-term debt from the Company’s which was included in the long-term refinancing.

In the 13-week period ending July 4, 2021, the Company continued to benefit from excellent results and positive operating cash flow even as government restriction on dining requirement were eased.

COVID-19, and its variants, including what has been described as the fast-spreading “Delta” variant, likely will to continue to have a significant impact on the United States economy.

It is difficult to predict either the ultimate impact of the COVID-19 pandemic or the impact of governmental responses on the United States economy in general, and specifically the impact on the quick service drive-through segment of the food service industry and on Company’s operating results and financial condition as the situation is evolving.

In May 2020, the Company received pandemic-related loans totaling $487,900.

Included in that amount was $460,400 borrowed under the Small Business Administration’s Paycheck Protection Program (“PPP”) under the terms of the program, the Company applied for forgiveness of the loans in 2020, anticipating its application qualified the loans for forgiveness.

Following application by the Company, the loans were forgiven in 2021.

In anticipation of forgiveness of the PPP advances, the loan forgiveness was reflected as “Other Income” in the third quarter of 2020.

Also, in May 2020, the Company borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program.

Our primary requirements for liquidity are to fund our working capital needs, capital expenditures, and general corporate needs, as well as to invest in or acquire companies that are synergistic with or complimentary to our business.

Included in that amount was $460,400 borrowed under the Small Business Administration’s Paycheck Protection Program (“PPP”).

Under the terms of the program, the loans were forgiven in 2021.

The SBA’s forgiveness of the PPP is accounted for as a “grant” and $466,400 was reflected as “Other Income” in the second quarter of 2020.

Also, in May 2020, the Company borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program which under certain circumstance, may become a grant.

Our primary requirements for liquidity are to fund our working capital needs, capital expenditures, and general corporate needs, as well as to invest in or acquire businesses that are synergistic with or complimentary to our business.

Our operations do not require significant working capital, and, like many restaurant companies, we generally operate with negative working capital.

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Cash Flows Provided by Operating Activities

As a result of the strong sales increase over the prior year, we generated significant positive cash flow in the 13-week period ending April 4, 2021.

The winter months have historically been seasonally the slowest part of the Company’s business.

Operating cash flow in 2020 included $466,758 of “other income” in operating cash flow which did not reoccur in 2021 contributing to a decline in cash flow from operations in the first six months of 2021 compared to 2020.

As a result of the strong sales increase over the prior year, we generated $496,251 in cash flow for operations in the 26-week period ending July 4, 2021.

The winter months have historically been seasonally the slowest part of the Company’s business generating a lower level of cash flow in comparison to the balance of the year.

Cash Flows Used in Investing Activities

In 2020 through the first quarter of 2021 the Company has focused on its primary business and building its working capital reserves.

In 2020 through the second quarter of 2021 the Company has focused on its primary business and building its working capital reserves.

Cash Flows Used in Financing Activities

A significant portion of the Company’s cash flow is allocated to service the Company’s debt.

Contractual Obligations

As of April 4, 2021, we had $3.2 million in contractual obligations relating principally to amounts due under mortgages on the real property on which are stores are situated.

Contractual Obligati

As of July 4, 2021, we had $3,268,000 in contractual obligations relating principally to amounts due under mortgages on the real property on which are stores are situated.

Our monthly required payment is approximately $24,000.

Following the end of the first quarter, the Company concluded to repay the Note payable to Bremer Bank in the amount of approximately $182,000 using on-hand cash reserves to make the payment.

In the second quarter of fiscal 2021, the Company refinanced most of its outstanding mortgage debt with a new lender lowering its nominal interest cost from 4.75% to 3.45% fixed for the next ten years.

Qualitative and Quantitative Disclosure about Market Risk

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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.

Our discussion and analysis of operating results and financial condition are based upon our condensed consolidated financial statements.

The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures of contingent assets and liabilities.

We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

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Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates.

All of our significant accounting policies are disclosed in our Form 10-K for the fiscal year ended January 3, 2021.

Jumpstart Our Business Startups Act of 2012

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis