BT Brands, Inc. 10-K/A

Item 8. Financial Statements and Supplementary Data. BT BRANDS, INC. INDEX TO FINANCIAL STATEMENTS Audited Consolidated Financial Statements Page No. Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 29, 2019 and December 30, 2018 F-3 Consolidated Statements of Income for the years ended December 29, 2019 and December 30, 2018 F-4 Consolidated Statements of Shareholders' Deficit for the years ended December 29, 2019 and December 30, 2018 F-5 Consolidated Statements of Cash Flows for the years ended December 29, 2019 and December 30, 2018 F-6 Notes to Consolidated Financial Statements F-7 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of BT Brands, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of BT Brands, Inc. (the “Company”) as of December 29, 2019 and December 30, 2018 and the related consolidated statements of income, shareholders’ deficit, and cash flows for the fiscal years then ended (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 29, 2019 and December 30, 2018 and the results of their operations and their cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2015. Minneapolis, Minnesota April 13, 2020 Boulay 7500 Flying Cloud Drive Suite 800 Minneapolis, MN 55344 (t) 952.893.9320 (f) 952.835.7296 BoulayGroup.com Member of Prime Global, A Global Association of Independent Firms F-2 Table of Contents BT BRANDS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 29, 2019 December 30, 2018 ASSETS CURRENT ASSETS Cash $ 258,101 $ 663,511 Receivables 15,363 20,241 Inventory 56,432 58,584 Prepaid expenses 6,929 8,211 Deferred offering costs - 40,000 Total current assets 336,825 790,547 PROPERTY AND EQUIPMENT, net 1,650,012 2,052,539 LAND AND BUILDINGS HELD FOR SALE 449,244 353,092 INVESTMENT IN NOTES RECEIVABLE FROM RELATED COMPANY 179,000 - OTHER ASSETS, net 18,459 68,659 Total assets $ 2,633,539 $ 3,264,837 LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Current maturities of long-term debt $ 277,666 $ 254,397 Accounts payable 321,855 288,659 Accrued expenses 202,732 174,986 Income taxes payable 2,898 13,725 Total current liabilities 805,151 731,767 LONG-TERM DEBT, less current maturities 3,221,035 3,516,028 DEFERRED INCOME TAXES - 48,500 UNEARNED VENDOR REBATE 3,668 9,780 Total liabilities 4,029,854 4,306,075 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT Preferred stock, $.001 par value, 2,000,000 shares authorized, no shares outstanding at December 29, 2019 and December 30, 2018 - - Common stock, $.001 par value 50,000,000 authorized, 8,095,004 and 8,086,004 shares outstanding at December 29, 2019 and December 30, 2018, respectively 8,095 8,086 Additional paid-in capital 497,671 484,180 Accumulated deficit (1,902,081 ) (1,533,504 ) Total shareholders' deficit (1,396,315 ) (1,041,238 ) Total liabilities and shareholders' deficit $ 2,633,539 $ 3,264,837 F-3 Table of Contents BT BRANDS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME 52 Weeks Ended, December 29, 2019 December 30, 2018 SALES $ 6,480,564 $ 7,051,467 COSTS AND EXPENSES Restaurant operating expenses Food and paper costs 2,574,388 2,835,757 Labor costs 2,140,157 2,237,378 Occupancy costs 718,905 847,274 Other operating expenses 353,502 328,709 Depreciation 211,087 225,814 Amortization 1,700 1,700 Impairment of asset held for sale 93,488 - Loss (gain) on sale of property and equipment 1,800 (158,358 ) General and administrative 607,585 492,378 Total costs and expenses 6,702,612 6,810,652 Loss from operations (222,048 ) 240,815 INTEREST INCOME 4,402 89 OTHER INCOME (EXPENSE) 8,410 (29,421 ) INTEREST EXPENSE (207,841 ) (176,955 ) INCOME BEFORE TAXES (417,077 ) 34,528 INCOME TAX (PROVISION) BENEFIT 48,500 (13,725 ) NET INCOME (LOSS) $ (368,577 ) $ 20,803 NET INCOME (LOSS) PER COMMON SHARE - Basic and Diluted $ (0.05 ) $ 0.00 WEIGHTED AVERAGE SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted 8,087,977 7,216,835 F-4 Table of Contents BT BRANDS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT Common Stock Additional Accumulated Shares Amount Paid-in Capital (Deficit) Total Balances, December 31, 2017 6,596,000 $ 6,596 $ (6,596 ) $ (1,524,735 ) $ (1,524,735 ) Conversion of BTND ownership to common stock 820,000 820 (820 ) - - Common stock and warrants issued in private placement, net of cash offering costs of $122,734 and placement agent warrant of $15,421 and common stock of $327,600 410,004 410 148,835 - 149,245 Placement agent warrant - - 15,421 - 15,421 Common stock issues as part of private placement offering costs 260,000 260 327,340 - 327,600 Distributions - - - (29,572 ) (29,572 ) Net Income - - - 20,803 20,803 Balances, December 30, 2018 8,086,004 8,086 484,180 (1,533,504 ) (1,041,238 ) Net (loss) - - - (368,577 ) (368,577 ) Issuance of incentive compensation shares 9,000 9 13,491 - 13,500 Balances, December 29, 2019 8,095,004 $ 8,095 $ 497,671 $ (1,902,081 ) $ (1,396,315 ) F-5 Table of Contents BT BRANDS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS 52 Weeks Ended 52 Weeks Ended December 29, 2019 December 30, 2018 CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) $ (368,577 ) $ 20,803 Adjustments to reconcile net income (loss) to net cash provided by operating activities- Stock-based incentive compensation 13,500 - Depreciation 211,087 225,814 Amortization of franchise agreement 1,700 1,700 Amortization of debt issuance cost 5,176 5,980 Impairment of asset held for sale 93,488 - (Gain) /Loss on sale of property and equipment 1,800 (158,358 ) Impairment of goodwill 48,500 - Deferred tax benefit (48,500 ) - Write-off of deferred offering costs 40,000 - Changes in operating assets and liabilities Receivables 4,878 (1,137 ) Inventory 2,152 12,111 Prepaid expenses 1,282 (3,338 ) Accounts payable 33,196 (63,162 ) Unearned vendor rebate (6,112 ) (4,890 ) Accrued expenses 27,746 (132 ) Income taxes payable (10,827 ) 13,725 Net cash provided by operating activities 50,489 49,116 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds of sale of property and equipment - 300,000 Investment in notes receivable from related entity (179,000 ) (16,770 ) Purchase of property and equipment - (66,652 ) Net cash provided by (used in) investing activities (179,000 ) 216,578 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt - 139,000 Principal payments on long-term debt (276,899 ) (403,927 ) Issuance of common stock, net - 492,266 Debt issuance costs - (1,000 ) Deferred offering costs - (40,000 ) Distributions to members - (29,572 ) Net cash provided by (used in) financing activities (276,899 ) 156,767 CHANGE IN CASH (405,410 ) 422,461 CASH, BEGINNING OF YEAR 663,511 241,050 CASH, END OF YEAR $ 258,101 $ 663,511 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 202,665 $ 170,975 SUPPLEMENTAL DISCLOSURE OF INVESTING AND FINANCING ACTIVITIES Transfer of property and equipment to assets held for sale $ 189,640 $ - Purchase of fixed assets in exchange for debt $ - $ 200,000 Common stock warrants issued for offering $ - $ 15,421 Common stock issued for offering costs $ - $ 327,600 Goodwill and deferred tax liability assumed in reverse merger $ - $ 48,500 F-6 Table of Contents NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Recent Reverse Merger Transaction BT Brands (the “Company”) was incorporated as Hartmax of NY Inc. on January 19, 2016. Effective July 30, 2018, the Company acquired 100% of the ownership of BTND, LLC. in exchange for common stock in the Company through a Share Exchange Agreement (“Share Exchange”) with BTND, LLC (“BTND”), and its Members. Following the Share Exchange, BTND became a wholly-owned subsidiary of the Company. Effective with the Share Exchange, all outstanding membership interests in BTND were exchanged with former members of BTND, for an aggregate of 6,596,000 shares of the Company’s common stock, equal to approximately 85.9% of the total number of shares of common stock outstanding after giving effect to the Share Exchange. BTND was considered the acquirer for accounting purposes and the transaction was accounted for as a reverse acquisition. Consequently, after the giving effect to the merger, the assets and liabilities and the historical operations that will be reflected in future consolidated financial statements will be those of BTND at its historical cost basis. As part of the reverse merger, the Company assumed a deferred tax liability of $48,500 which was initially recognized as goodwill and was included in other assets. During 2019 this amount was determined to be impaired and is reflected as a general and administrative expense the current year. 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, and the Richmond location is currently listed for sale. The Company owns a restaurant property in St. Louis, Missouri currently held for sale. The Company operated a total of ten restaurants at December 29, 2019 and December 30, 2018. 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. Principles of Consolidation The accompanying consolidated financial statements include the accounts of BT Brands, Inc., BTND, LLC and its wholly-owned subsidiaries BTND IN, LLC, BTNDMO, LLC and BTNDDQ, LLC. Significant intercompany accounts and transactions have been eliminated in consolidation. F-7 Table of Contents Fiscal Year 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. Fiscal 2019 was a 52-week period ending December 29, 2019 and Fiscal 2018 was the 52-week period ending on December 30, 2018. All references to years in this report refer to the fiscal years described above. Fair Value of Financial Instruments The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the statements on a recurring or nonrecurring basis adhere to the Financial Accounting Standards Board (FASB) fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are as follows: ● Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access the measurement date. ● Level 2 Inputs are inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. ● Level 3 Inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to fair value measurement in its entirety The carrying values of cash, receivables, accounts payable and other financial working capital items approximate fair value at year end due to the short maturity nature of these instruments. The fair value of the investment in notes receivable form related company approximates the carrying value as the 14% interest rate is a market rate at December 29, 2019. Cash For purposes of reporting cash and cash flows, cash is net of outstanding checks and includes, amounts on deposit at banks, a money market mutual fund, and deposits in transit. F-8 Table of Contents Revenue Recognition and Adoption of Accounting Standards Update 2014-09 The Company’s revenues consist of sales by Company-operated restaurants. The Company adopted Accounting Standards Update (ASU) 2014-09 (ASC 606) as of January 1, 2018 using the modified retrospective method. This method allows the standard to be applied retrospectively through a cumulative catch up adjustment recognized upon adoption. ASC 606 provides that revenues are to be recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration expected to be received for those goods or services. This standard does not impact the Company’s recognition of revenues as the only revenue stream is from Company-operated restaurants as those sales are recognized on a cash basis at the time of the underlying sale and are presented net of sales tax and other sales-related taxes so no cumulative catch up adjustment or other adjustments were required by the Company . 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. During 2018, the Company sold a restaurant property in St. Louis, Missouri for a net gain of approximately $158,358. A second 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 are listed for sale. As of June 30, 2019, it was concluded to record a charge of $93,488 for impairment of the value of the Richmond location. The net carrying of the Richmond and the St. Louis property held for sale is $325,000 and $124,244, respectively. Advertising and Marketing Costs The Company expenses advertising and marketing costs as incurred. Advertising expense for fiscal 2019 and 2018 totaled $49,618 and $44,897, respectively. F-9 Table of Contents Income Taxes Following the July 30, 2018 Share Exchange, the Company began filing federal and state income tax returns as a “C” Corporation. Accordingly, subsequent to July 30, 2018, the Company provides 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. The following table presents a reconciliation of the tax expense computed at the statutory federal rate and the Company’s tax expense for the respective fiscal years: 2019 2018 Tax provision (benefit) at statutory federal rate $ (87,500 ) $ 7,200 State income taxes (benefit), net of federal tax effect (27,000 ) 2,000 Change in valuation allowance on deferred tax items 54,000 - Permanent and other items 12,000 4,525 $ (48,500 ) $ 13,725 Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit Carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The tax effect of the temporary differences and carryforwards are as follows for the respective fiscal years: 2019 2018 Deferred tax assets (liabilities): Net operating loss $ 43,000 $ - Property and equipment 11,000 (48,500 ) Valuation allowance on deferred tax items (54,000 ) - Deferred income tax liability - $ (48,500 ) Based on the taxable loss in 2019, as of December 29, 2019, the Company had a federal net operating loss carryforward (the “NOL”) of approximately $153,000 which may be used to offset future consolidated taxable income. Under the most recent tax legislation, the NOL may be carried forward indefinitely until the loss is fully recovered, subject to the limitation of 80% of taxable income in any one year. No benefit in terms of the realization of the future tax benefits has been recorded because of the uncertainty of future profitability and ultimate realization of the future tax benefit. Prior to 2018 Share Exchange, BTND, with the consent of its shareholders, elected to be taxed under sections of the Federal and state income tax laws which provide that, in lieu of corporation income taxes, the shareholders separately account for their pro rata shares of the Company’s items of income, deductions, losses and credits. Therefore, these consolidated statements do not include a provision for income taxes related to the Company for the periods prior to the July 30, 2018. As of the of fiscal year 2019 and 2018, 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. The last three years of BTND, LLC are subject to federal and state tax examination. F-10 Table of Contents 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 equivalents 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 years ending in 2019 and 2018, as the strike price for 205,002 warrants outstanding at December 29,2019 and December 30, 2018 was above the fair market price of the underlying stock. Other Assets Other assets is the allocated fair value of the acquired Dairy Queen franchise agreement related to the Company’s location in Ham Lake, Minnesota, and is being amortized over an estimated useful life of 14 years. Amortization for each of the next five years is estimated to be approximately $2,000 per year. Accumulated amortization was approximately $7,000 and $5,000 at the end of 2019 and 2018, respectively. Restaurant Pre-opening expenses Restaurant pre-opening and other development expenses are non-capital expenditures and are expensed as incurred as part of other operating expenses. Restaurant pre-opening expenses may include the costs of hiring and training the initial hourly work force for each new restaurant, travel, the cost of food and supplies used in training, grand opening promotional costs, the cost of the initial stocking of operating supplies and other direct costs related to the opening of a restaurant, including rent during the construction and in-restaurant training period. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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. Segment Reporting The Company follows the guidance of FASB Accounting Standards for reporting and disclosure on operating segments requiring segment disclosures about products and services, geographic areas, and major customers. The Company has determined that it did not have any separately reportable operating segments. Liquidity and Capital Resources The consolidated financial statements have been prepared on a going concern basis. For the year ended December 29, 2019, the Company incurred a net loss of $368,577. Cash flow provided by operating activities increased to $50,489 in 2019 from $49,116 for fiscal 2018. At December 29, 2019, the Company had $258,101 in cash and working capital deficit of $468,327. 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 which totals approximately $93,600. As a result, the Company expects to have sufficient cash assets to meet its obligations for a year from the issuance of these consolidated financial statements. No adjustments have been made relating to recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern. F-11 Table of Contents Recently Adopted Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), requiring companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The ASU is effective for the Company for annual periods beginning after December 15, 2018. The Company has concluded that there is no material impact from the standard on its consolidated financial statements as the Company does not have any leases with a term more than one year. NOTE 2 – PROPERTY AND EQUIPMENT Property and equipment consisted of the following at end of the respective fiscal years: 29/12/2019 30/12/2018 Land $ 555,885 $ 584,535 Equipment 2,390,545 2,417,185 Buildings 1,363,642 1,401,840 Vehicles - 4,000 Total property and equipment 4,310,072 4,407,560 Accumulated depreciation (2,210,816 ) (2,001,929 ) Less - property held for sale (449,244 ) (353,092 ) Net property and equipment $ 1,650,012 $ 2,052,539 Depreciation expense for the years 2019 and 2018 was $211,087 and $225,814, respectively. NOTE 3 – ACCRUED EXPENSES Accrued expenses consisted of the following at the end of the respective fiscal years: 29/12/2019 30/12/2018 Accrued real estate taxes $ 66,959 $ 30,206 Accrued payroll 69,572 70,421 Accrued payroll taxes 7,058 4,025 Accrued sales taxes payable 35,380 45,219 Accrued vacation pay 23,204 23,227 Other accrued expenses 559 1,888 $ 202,732 $ 174,986 F-12 Table of Contents NOTE 4 – STOCKHOLDERS’ DEFICIT During 2018 the Company issued 6,596,000 common shares in exchange for the member interests of BTND, LLC. and 820,000 shares were issued to Maxim Partners and others as part of the Share Exchange and 260,000 common shares were issued to consultants associated with the offering and this amount is reflected as an additional offering cost. Upon closing of the private offering 410,004 common shares and 205,002 common stock warrants to purchase shares at $2.00 through July 31, 2023 were issued to investors in consideration for a net amount of approximately $492,266, all of these warrants were outstanding as of the end of the year. Upon closing of the private offering, and outstanding at each fiscal year-end are an aggregate of 32,801 five-year stock purchase warrants to purchase shares at $1.65 per share issued to the placement agent. The estimated the fair value of the warrants at the issuance date was approximately $15,421 and this amount is also reflected as an additional cost of the offering. The 6,596,000 common shares were issued in exchange for all outstanding membership interests of BTND, LLC. in 2018 and the Company’s financial statements were retrospectively adjusted to prior periods as if the Share Exchange occurred on January 1, 2017. In October 2019, the board of directors of the Company and the holders of a majority of the outstanding shares of common stock adopted the 2019 Incentive Plan. Under the 2019 Incentive Plan, the Company reserved up to 500,000 shares of common stock for issuance to officers, directors, employees and consultants. On October 11, 2019, the company issued an aggregate of 9,000 shares of common stock as stock awards to 30 employees of the Company. In April 2019, the Company, through a written consent by the holders of a majority of the Company’s outstanding shareholders, amended its Articles of Incorporation to increase the number of preferred shares authorized from 500,000 shares to 2,000,000 and it also increased the number common shares authorized to 50,000,000 from 19,000,000. F-13 Table of Contents NOTE 5 – LONG TERM DEBT The Company had the following long term debt obligations as of: 29/12/2019 30/12/2018 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. $ 699,311 $ 747,456 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 locations and the personal guaranty of a shareholder of the Company. 1,509,435 1,612,400 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. 414,562 443,406 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. 384,208 409,352 Two notes payable to bank dated December 30, 2015 due in monthly installments of $5,190 which included interest at the fixed annual rate of 5%. These notes were paid in full during 2019. - 36,419 Notes payable to bank dated November 10, 2016 payable in monthly installments 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. 151,234 160,949 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 July 1, 2019, a revised note was entered into extending the due date to June 1, 2021 requiring monthly payments of $5,000, which includes principal and interest, beginning August 1, 2019. 207,264 225,000 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. 192,068 200,000 3,558,082 3,834,982 Less - unamortized debt issuance costs (59,381 ) (64,557 ) Current maturities (277,666 ) (254,397 ) Total $ 3,221,035 $ 3,516,028 F-14 Table of Contents Scheduled maturities of long-term debt, excluding unamortized debt issuance costs, are as follows: 29/12/2019 $ 277,667 01/01/2021 406,303 02/01/2022 256,116 01/01/2023 419,908 31/12/2023 270,288 Thereafter 1,927,800 $ 3,558,082 NOTE 6 – RELATED PARTY TRANSACTIONS Next Gen Ice In 2019 the Company made a series of advances in the form of investments in Next Gen Ice, Inc. (NGI) Series C Notes totaling $179,000. The Company’s CEO, Gary Copperud, is Chairman of NGI and the Company’s Chief Operating Officer, Kenneth Brimmer, is a member of the Board of Directors of NGI and is currently serving as Chief Financial Officer of NGI on a part-time contract basis. Limited liability corporations controlled by Mr. Copperud together own approximately 55% of the outstanding equity of NGI. The Series C Notes were originally due on March 3, 2020 and under certain conditions were convertible into common stock of NGI at the option of the holder. On March 3, 2020, the Company and NGI entered into a Loan Modification and Extension Agreement pursuant to which the Company agreed to extend the maturity date of the NGI Notes to August 31, 2020. In consideration of the extension of the term of the NGI Notes, NGI granted to the Company a security interest in all of NGI’s assets and issued to the Company warrants entitling it to purchase 358,000 shares of common stock of NGI at a price of $1.00 per share at any time through March 31, 2023, and the founders of NGI including, the Company’s CEO, agreed to transfer to the Company 179,000 common shares of NGI, representing approximately 3% of the NGI common stock outstanding. Corporate Expense Sharing The Company pays the salary and benefits of the Company controller based in Fargo, North Dakota and the Company pays monthly rent, on a month-to-month basis, for the office space of $500 per month. From time-to-time the Company’s controller provides limited bookkeeping and administrative assistance for entities that are controlled by shareholders of Company. These are minimal services for which the Company has not been compensated. F-15 Table of Contents NOTE 7 – MAJOR VENDOR Approximately 83% of the Company’s purchases for the year ended December 29, 2019 were from one vendor. At December 29, 2019, the amount due to the major vendor totaled $222,926. In fiscal 2018, approximately 83% of the Company’s purchases were from the same vendor. At December 30, 2018, the amount due to this vendor was $210,642. NOTE 8 – 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 9 – LAND LEASE The Company is a party to a month-to-month land lease agreement for one of its locations. The net book value of the building located on this land is approximately $38,000. The monthly lease payment is $1,600. NOTE 10 – SUBSEQUENT EVENTS The Company has evaluated subsequent events through April 3, 2020 the date on which the consolidated financial statements were available to be issued. The $179,000 in Notes due from Next Gen, Ice, a related party, were originally due for repayment on March 2, 2020. Following the due date an agreement was entered into extending the date of repayment to August 31, 2020. In connection with the extension of the repayment due date to August 31, 2020, NGI issued to the Company warrants entitling it purchase 358,000 shares of NGI common stock at $1.00 per share at any time through March 31, 2023, and the founders of NGI agreed to transfer to the Company 179,000 common shares of NGI. On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (‘Covid-19”) a global pandemic. Indications are Covid-19 will have a significant adverse impact on the United States economy and on the markets in which we operate. At this time, all of our units continue to operate, however, it is impossible to predict either 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. F-16 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.