Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operation should be read in conjunction with the financial statements and related notes that appear elsewhere in this Annual Report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Fiscal Year
Our fiscal year is 52/53 weeks long, ending on the Sunday closest to December 31. The 52-week fiscal year 2024 ended on December 29, 2024, and the 52-week fiscal year 2023 ended on December 31, 2023.
Introduction
As of December 29, 2024, including our partially owned Bagger Dave’s business, we owned and operated seventeen restaurants comprising the following:
·
Seven Burger Time (Net of one unit closed in January 2025) fast-food restaurants (“BTND”);
·
Village Bier Garten is a German-themed restaurant, bar, and entertainment venue in Cocoa, Florida. (“VBG”) which was closed January 2, 2025:
·
Keegan’s Seafood Grille in Indian Rocks Beach, Florida (“Keegan’s”);
·
Pie In The Sky Coffee and Bakery in Woods Hole, Massachusetts (“PIE”);
·
Schnitzel Haus in Hobe Sound, Florida (Schnitzel”); and
·
Unconsolidated affiliate Bagger Dave’s Burger Tavern, Inc., 39.6% owned and operates six Bagger Dave’s restaurants in Michigan, Ohio, and Indiana (“BDVB”).
Burger Time opened its first restaurant in Fargo, North Dakota, in 1987. Burger Time restaurants feature traditional grilled hamburgers, other affordable foods, and soft drinks. Burger Time’s 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 and quality food made fresh to order at a fair price
The average customer transaction at Burger Time restaurants in the year decreased slightly in 2024 compared to 2023 and is currently about $14.50. We are constantly reviewing menu prices to maintain gross margins during recent periods of accelerating inflation. Many factors influence our sales trends. Our business environment is challenging as competition is intense.
We operate through a central management organization that provides continuity across our restaurant base by utilizing the efficiencies of a central management team.
Recent Events
Our acquisitions have allowed us to diversify our operations into new restaurant segments and new geographic regions, reducing our dependency on the financial performance of our Burger Time restaurants. In 2024, we acquired the Schnitzel Haus restaurant, and in 2022, we purchased three operating restaurants and now own a 39.6% interest in BDVB, an operator of six casual restaurants. In May of 2024, we purchased the Schnitzel Hause restaurant. We may consider and evaluate additional acquisition opportunities in the future. Due to the underperformance of our Village Bier Garten restaurant relative to our expectations, we made the decision early in 2025 to close the business. We own 39.6% of the publicly held Dave’s Burger Tavern, Inc., the owner and operator of six Bagger Dave’s restaurants, a casual restaurant and bar concept. Bagger Dave’s provides an inviting, entertaining atmosphere specializing in burgers, hand-cut fries, craft beer, milkshakes, salads, pizza, and other items. Bagger Dave’s opened its first restaurant in Berkley, Michigan, in January 2008 and operates four restaurants in Michigan, one restaurant in Ft. Wayne, Indiana, and one location in Centerville, Ohio. In January 2025, Bagger Dave’s closed a unit in Chesterfield, Michigan. We are currently exploring the sale of all of Bagger Dave’s restaurant locations.
26
Table of Contents
Material Trends and Uncertainties
Industry trends have a direct impact on our business. Current trends include difficulties attracting food service workers and rapid inflation in the cost of input items. Recent trends also include the rapidly changing areas of technology and food delivery. The major companies in the restaurant industry have rapidly adopted and developed smartphone and mobile delivery applications, have aggressively expanded drive-through operations, and developed loyalty programs and database marketing supported by a robust technology platform. We expect these trends to continue as restaurants aggressively compete for customers. Competitors will continue to discount prices through aggressive promotions.
Food costs have increased over the last two years, and we expect to see continued inflationary pressure during 2024. Beef and egg costs continued to increase in 2024, and we expect costs to continue to be volatile in 2024. Given the competitive nature of the restaurant industry, it may be challenging to raise menu prices to fully cover cost increases. Future margin improvements may be difficult to achieve. Margin improvement will be achieved through operational enhancements, equipment advances, and increased volumes offsetting food cost increases.
Labor is a critical factor in operating our stores. Securing staff to run our locations has been more challenging in most areas where we operate our restaurants. The current labor market has resulted in higher wages as the competition for employees intensifies, not only in the restaurant industry but in practically all retail and service industries. We must develop and retain quality employees.
We cannot determine the future effects of any public health matters on our operations and financial results. We have and could continue to experience the impact of recent events, including but not limited to commodity inflation, disruption in our supply chain, and labor availability challenges at certain shops. We have increased and plan to continue raising prices to offset additional costs due to a higher inflationary economic environment in the U.S. These price increases may not be sufficient to mitigate higher costs, and further increases may negatively impact consumer behavior.
Results of operations for the 52 weeks ending December 29, 2024, compared to the 52 weeks ending December 31, 2024.
The following table sets forth, for the years indicated, our Consolidated Statements of Operations expressed as a percentage of total revenues. The percentages below may not reconcile because of rounding.
52 weeks ended,
December 29, 2024
52 weeks ended,
December 31, 2023
Amount
%
Amount
%
SALES
$ 14,823,472
100.0 %
$ 14,076,653
100.0 %
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs
5,605,579
37.8
5,597,167
39.8
Labor costs
6,128,574
41.3
5,458,351
38.8
Occupancy costs
1,403,204
9.5
1,312,717
9.3
Other operating expenses
962,287
6.5
841,894
6.0
Depreciation and amortization
742,860
5.0
598,540
4.3
Impairment of assets
371,872
2.5
—
General and administrative
1,691,404
11.4
1,650,755
11.7
Gain on sale of asset
(250,000 )
(1.7 )
(310,182 )
(2.2 )
Total costs and expenses
16,655,780
112.3
15,149,242
107.6
Loss from operations
(1,832,308 )
(12.3 )
(1,072,589 )
(7.6 )
UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES
(93,458 )
(.6 )
80,139
.6
REALIZED GAIN ON MARKETABLE SECURITIES
143,340
1.0
23,058
.2
INTEREST EXPENSE
(99,906 )
(.7 )
(97,608 )
(.7 )
INTEREST AND DIVIDEND INCOME
178,279
1.2
300,923
2.1
OTHER INCOME
13,930
.1
80,790
(.6 )
EQUITY IN LOSS OF AFFILIATE
(415,085 )
(2.8 )
(347,081 )
(2.5 )
INCOME TAX (EXPENSE) BENEFIT
(206,000 )
(1.4 )
145,000
1.0
NET LOSS
$ (2,311,208 )
(15.5 )%
$ (887,368 )
(6.3 )%
27
Table of Contents
Net Revenues:
Net sales for 2024 increased $746,819, or 5.3%, to $14,823,472 from $14,076,653 in 2023. Schnitzel Haus, acquired in May 2024, contributed $710,000 in sales to the overall increase in revenue. Also contributing to the overall sales increase was an increase of approximately 7% at BTND locations, offsetting the effects of closing a location in Sioux Falls, South Dakota, early in the year and the conversion of the Ham Lake franchise unit to Burger Time, resulted in two-month closure of the location. PIE also contributed to the sales increase during the year, with a 19% increase in sales in 2024.
For BTND locations open at year-end, 2024 restaurant sales ranged from a low of $567,000 to a high of $1,176,000. The average sales for each Burger Time unit open at year-end were approximately $926,000 in 2024, an increase of approximately 12.8% from $821,000 in 2023.
Restaurant Operating Costs:
In 2024, restaurant operating costs (which refer to all the costs associated with operating our restaurants but do not include general and administrative expenses and depreciation, amortization, and restaurant impairment charges) increased to 95.1% of restaurant sales from 93.9% in 2023. This increase was due primarily to continued price inflation on input costs, including food and labor, and the matters discussed in the “Cost of Sales,” “Labor Costs,” and “Occupancy and Other Operating Cost” sections below.
The impact of cost increases and the addition, including non-BTND restaurants during the year, may be detailed as follows:
Restaurant operating costs for the period ended December 31, 2023
$ 13,210,129
Increase in food and paper costs
8,412
Increase in labor costs
670,223
Increase in occupancy and operating cost
210,880
Restaurant operating costs for the period ended December 29, 2024
$ 14,099,644
Costs of Sales - food and paper:
The cost of food and paper sales for 2024 decreased to 37.8% of restaurant sales from 39.8% in 2023. The decrease is the net result of menu price increases at all locations during the year, offset by a moderate inflationary cost environment, where we saw a slight rise in beef and paper and lower costs for some other items. Because of its coffee-focused menu, PIE has significantly lower food and paper costs than our other restaurants.
Labor Costs:
In 2024, labor and benefits costs increased to 41.3% of restaurant sales from 38.8% in 2023. The increase results from higher wages for hourly employees and managers in all of our markets and an unfavorable utilization of the fixed portion of labor costs. Also, PIE and Keegan’s businesses run higher labor costs than BTND. In addition, we added a senior culinary person at PIE to focus on new menu development. Payroll costs are semi-variable, 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.
Occupancy and Other Operating Costs:
For 2024, occupancy and other costs increased to 16.0% of sales, or $2,355,806, compared to $2,154,611, or 15.3% of restaurant sales in 2023, principally as a result of the addition of Schnitzel Haus as a leased location during the year.
Depreciation and Amortization Costs:
For 2024, depreciation and amortization costs increased 24.1%, or $144,320, to $742,860 (5.0% of sales) from $598,540 (4.3% of sales) in 2023. Depreciation and amortization costs increased as a result of significant capital additions during the year, including the purchase of Schnitzel and the replacement of some hurricane-damaged property at Keegan’s.
General and Administrative Costs
General and administrative costs in 2024 declined as a percentage of sales with an overall increase of 2.5%, or $40,649, to $1,691,404 (11.4% of sales) from $1,650,755 (11.7% of sales) in 2023.
28
Table of Contents
Income (loss) from Operations:
The loss from operations was $1,832,108 in 2024 compared to a loss from operations of $1,072,589 in 2023. A significant portion of the increase in the loss was the result of the impairment charge related to the continuing poor results at VBG, leading to the decision to close the location in 2025 as a result of recording an impairment charge of $371,872, which is included in costs and expenses. PIE profitability declined because costs increased faster than menu prices. PIE also invested in additional staffing and culinary leadership, focusing on broadening the menu to increase business in the afternoons and evenings. The change in income from operations in 2024 compared to 2023 reflects a $250,000 gain on the sale of a trademark asset and was also due to the matters discussed in the “Net Revenues,” “General and Administrative Costs,” and “Restaurant Operating Costs” sections above.
Interest expense:
In 2024, our interest expense increased $2,298 to $99,906 (0.7% of restaurant sales) from $97,608 (0.7% of restaurant sales) in 2023 due to additional margin interest costs offset by schedule amortization reducing loan balances, resulting in a lower interest cost.
Interest and Dividends and Other Income:
Interest and dividend income was $178,279 in 2024, a decline from $300,923 in 2023, due to a lower average cash and investment balance in 2024, when more short-term assets were invested in non-dividend or interest-earning investments.
Net Income (loss):
Net Loss
The net loss was $2,311,208 in 2024 compared to a loss of $887,368 in 2023. The increase in the net loss in 2024 from 2023 reflects the impact of an increase in the share of loss from Bagger Dave’s to $415,085 from $347,081 in 2023. The impact of fully reserving for deferred tax benefits resulted in a $206,000 income tax provision in the year. The increase in the loss from 2023 also reflects the $371,872 impairment charge related to VBG. The net loss was also attributable to the matters discussed in the “Net Revenues,” “Restaurant Operating Costs,” “General and Administrative Costs,” and “Other Income” sections.
Restaurant-level EBITDA :
To supplement the consolidated financial statements, which are prepared and presented in accordance with GAAP, we use restaurant-level EBITDA (earnings before interest, taxes, depreciation, and amortization), which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. However, this measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute for or superior to operating income, 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. General and administrative expenses are excluded as they are generally unrelated to restaurant-specific costs. Depreciation and amortization are excluded because they are not ongoing controllable cash expenses and are unrelated to ongoing operations’ health.
Year
2024
2023
Revenues
$ 14,832,108
$ 14,076,653
Reconciliation:
Loss from operations
(1,832,308 )
(1,072,589 )
Depreciation and amortization
742,860
598,540
Gain on sale of assets
(250,000 )
(310,182 )
Impairment of restaurant asset
371,872
-
General and administrative, corporate-level expenses
1,691,404
1,650,755
Restaurant-level EBITDA
$ 723,828
$ 866,524
Restaurant-level EBITDA margin
4.9 %
6.2 %
29
Table of Contents
Liquidity and Capital Resources
For the 52 weeks ending December 29, 2024, we recorded an after-tax loss of $2,311,208. At December 29, 2024, we had $4,270,970 in cash and marketable securities and a net working capital of $3,556,469.
Our primary requirements for liquidity are to fund our working capital needs, capital expenditures, and general corporate needs, as well as to invest in or acquire businesses that are synergistic with our business. Our operations do not require significant working capital as, generally, restaurants operate with negative working capital. Working capital deficits may be incurred in the future. Our liquidity and cash flow sources are cash and cash equivalents and marketable securities on hand. We have used available cash to make acquisitions, service debt, and maintain our stores. Our working capital position benefits from the fact that we collect cash from sales from our customers at the point of sale or within a few days from our credit card processor, and in general, payments to our vendors are not due for thirty days.
Summary of Cash Flows
Cash Flows Provided by Operating Activities
The operating cash flow in 2024 was negative $723,505 compared to negative $258,787 in 2023, representing a decline in cash flow from operations of $464,719 in 2024.
Cash Flows Used in Investing Activities
In 2024, we acquired the Schnitzel Haus restaurant for $943,000. In 2023, on a net basis, we sold marketable securities. The Company used cash of approximately $495,000 in capital improvements at its restaurants. Proceeds from the sale of trademark assets were $250,000, and we lent $120,000 to NGI Corporation, a related party, in 2024.
Cash Flows from Financing Activities
Cash flow from financing activities reflects a reduction of $440,849. In 2024, broker margin borrowing of $115,899 was repaid. Additionally, we spent $142,794 purchasing treasury shares, and $182,156 was used for long-term debt principal payments.
Contractual Obligations
As of December 29, 2024, we had $4,048,155 in contractual obligations, including long-term debt and future lease liabilities. Our monthly required payments total approximately $50,000.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of Regulation S-K, we have elected to comply with certain scaled disclosure reporting obligations and are not required to provide the information required by this item.
Item 8. Financial Statements and Supplementary Data.
As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of Regulation S-K, we have elected to comply with certain scaled disclosure reporting obligations and are not required to provide the information required by this item.
30
Table of Contents