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Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-04-15 · 184 added, 149 removed, 179 unchanged (65% of the section changed)

Financial Statements and Supplementary Data.

INSERT INDEX,

BT BRANDS, INC.

AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 3, 2021 AND DECEMBER 29, 2019

TOGETHER WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT

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 January 3, 2021 and December 29, 2019 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 January 3, 2021 and December 29, 2019 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

March 10, 2021

7500 Flying Cloud Drive Suite 800 Minneapolis, MN 55344 (t) 952.893.9320 | 2180 Immokalee Road Suite 308 Naples, FL 34110 (t) 239.325.1100

BoulayGroup.com

Member of Prime Global, An Association of Independent Accounting Firms

BT BRANDS, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

1 unchanged sentence

Prepaid expenses

Deferred offering costs

Total current assets

1 unchanged sentence

LAND AND BUILDINGS HELD FOR SALE

INVESTMENT IN NOTES RECEIVABLE FROM RELATED COMPANY

INVESTMENT IN AND NOTES RECEIVABLE FROM RELATED COMPANY

OTHER ASSETS, net

8 unchanged sentences

DEFERRED INCOME TAXES

UNEARNED VENDOR REBATE

Total liabilities

1 unchanged sentence

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

Preferred stock, $.001 par value, 2,000,000 shares authorized, no shares outstanding at January 3, 2021 and December 29, 2019

Common stock, $.002 par value, 50,000,000 authorized, 4,047,502 shares outstanding at January 3, 2021 and December 29, 2019

Additional paid-in capital

2 unchanged sentences

Total liabilities and shareholders' deficit

See Notes to Consolidated Financial Statements

BT BRANDS, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

52 Weeks Ended,

COSTS AND EXPENSES

3 unchanged sentences

Other operating expenses

Impairment of asset held for sale

Loss (gain) on sale of property and equipment

Depreciation and amortization

Impairment of assets held for sale

Impairment of goodwill

General and administrative

Total costs and expenses

Loss from operations

Income (loss) from operations

INTEREST INCOME

OTHER INCOME (EXPENSE)

INTEREST EXPENSE

2 unchanged sentences

NET INCOME (LOSS)

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

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

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

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

See Notes to Consolidated Financial Statements

BT BRANDS, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

Paid-in Capital

Balances, December 31, 2018

1 unchanged sentence

$ (1,041,238 )

Conversion of BTND ownership to common stock

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

Placement agent warrant

Common stock issues as part of private placement offering costs

Distributions

Balances, December 30, 2018

Issuance of incentive compensation shares

Issuance of 4,500 Shares at Private Placement Value of $3.00

Balances, December 29, 2019

1 unchanged sentence

$ (1,494,315 )

Balances, January 3, 2021

$ (1,208,089 )

See Notes to Consolidated Financial Statements

BT BRANDS, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

52 Weeks Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (loss)

Adjustments to reconcile net income (loss) to net cash

provided by operating activities-

Adjustments to reconcile net income (loss) to net cash provided by operating activities-

Deferred interest expense paid in-kind

Noncash interest income

Stock-based incentive compensation

Impairment of assets held for sale

Amortization of franchise agreement

Amortization of debt issuance cost

Impairment of asset held for sale

(Gain) /Loss on sale of property and equipment

Impairment of goodwill

Deferred tax benefit

Loss on sale of property and equipment

Write-off of deferred offering costs

Deferred tax liability, net

Impairment of goodwill

Changes in operating assets and liabilities

1 unchanged sentence

Accounts payable

Unearned vendor rebate

Accrued expenses

2 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds of sale of property and equipment

Investment in notes receivable from related entity

Proceeds (advances to) from investment in related company

Purchase of property and equipment

3 unchanged sentences

Principal payments on long-term debt

Issuance of common stock, net

Debt issuance costs

Deferred offering costs

Distributions to members

Net cash provided by (used in) financing activities

Net cash used in financing activities

CHANGE IN CASH

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Transfer of property and equipment to assets held for sale

Purchase of fixed assets in exchange for debt

Common stock warrants issued for offering

Common stock issued for offering costs

Goodwill and deferred tax liability assumed in reverse merger

Purchase of property and equipment included in accounts payable

See Notes to Consolidated Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Reverse Merger Transaction

BT Brands (the “Company”) was incorporated as Hartmax of NY Inc.

Organization and Reverse Merger Transaction

BT Brands, Inc.

(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.

Effective July 30, 2018, the Company acquired 100% of the ownership of BTND, LLC (“BTND”).

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.

Following the Share Exchange, BTND became a wholly owned subsidiary of the Company and in 2020 BT Brands, Inc.

reincorporated in the State of Wyoming.

Effective with the Share Exchange, all outstanding membership interests in BTND were exchanged with former members of BTND, for an aggregate of 3,298,000 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.

BTND was 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 consolidated financial statements are those of BTND at its historical cost basis adjusted for goodwill related to a deferred tax liability assumed by the Company at the time of the merger.

Revision of Prior Financial Statements

In fiscal 2020, the Company determined that the deferred tax liability related to the difference between the tax basis and book value of the equipment at the time of the Share Exchange was not correctly calculated.

As a result, the 2018 accounting for the merger as of December 30, 2018 has been adjusted to reflect an increase of $151,500 in both the estimated deferred tax liability and goodwill arising from the Share Exchange.

As a result of the revision of the accounting for the 2018 Share Exchange, the financial statements for the year ended December 29, 2019 also were revised to reflect an additional impairment of $151,500 of the goodwill that was recorded during 2019.

The 2019 adjustment is net of a change in income tax benefit of $53,500 which is primarily related to an estimated $43,000 tax benefit available from a tax loss carryforward in 2019.

The net effect of the revision to the 2019 financial statements was to increase the net loss by $98,000, decreasing the previously reported loss for the year ended December 29, 2019 to a loss of $466,577 and increasing the accumluated deficit by $98,000 to $2,000,081.

The Company currently operates company-owned fast-food restaurants called Burger Time.

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Louis, Missouri currently held for sale.

The Company operated a total of ten restaurants at December 29, 2019 and December 30, 2018.

The Company operated a total of ten restaurants at the end of fiscal 2020 and 2019.

The Company’s Dairy Queen store is operated pursuant to the terms of a franchise agreement with International Dairy Queen.

5 unchanged sentences

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.

Fiscal 2020 was a 53-week period ending January 3, 2021 and Fiscal 2019 was the 52-week period ending on December 29, 2019.

All references to years in this report refer to the fiscal years described above.

Reverse Stock Split

Pursuant to a written consent of a majority of the Company’s shareholders, the Company’s Board of Directors approved a 1-for-2 common shares reverse stock split effective January 25, 2021.

All outstanding common shares and per share data presented herein have been retroactively adjusted to reflect the effect of the reverse split.

Fair Value of Financial Instruments

Accounting Standards Board (FASB) fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value.

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).

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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.

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.

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 .

The Company believes that the fair value of the investment in notes receivable from a related company on December 29, 2019 approximated the carrying value.

In the opinion of the Company, the stated 14% interest rate on the notes approximated the market rate of interest.

The Company received equity ownership as additional consideration for its agreement to modify the term of the notes in 2020 and $75,000 was attributed to the value of the equity and this amount is reflected as additional interest income in 2020.

The notes receivable were repaid in full in August 2020 and no notes were outstanding on January 3, 2021.

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

Revenue Recognition

The Company’s revenues consist of purchases of food products for cash, or bank-issued credit and debit card transactions, at Company’s restaurants.

The Company follows Accounting Standards Update (ASU) 2014-09 (ASC 606).

Under ASC 606, revenues are 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.

The Company’s sales are recognized at the point of sale and are presented net of discounts and incentives.

Sales are also reported net of applicable sales taxes.

Receivables consists of rebates due from a primary vendor.

6 unchanged sentences

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.

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 carrying 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.

A property in the St.

Louis area is currently listed for sale and the land and building were fully reserved for in the 2020 fourth quarter impairment charge.

Certain signage equipment originally purchased for the location was relocated for use at other company locations.

The write-down of the St.

Louis property resulted in an additional impairment charge of $90,493 during the fourth quarter of 2020.

Also, in September 2018 the Company closed an operating Burger Time unit in Richmond, Indiana and the Richmond property is listed for sale.

In the second quarter of 2020, it was concluded to record an additional charge of $100,000 for impairment of the value of the Richmond location which the Company believes the property will be sold at or above its current carrying cost of assets held for sale.

Advertising and Marketing Costs

1 unchanged sentence

Advertising expense for fiscal 2020 and 2019 totaled $29,924 and $49,618, respectively.

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.

The Company provides for income taxes under ASC 740, Accounting for Income Taxes, 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:

Tax provision (benefit) at statutory federal rate

State income taxes (benefit), net of federal tax effect

Change in valuation allowance on deferred tax items

Permanent and other items

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.

2 unchanged sentences

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

As of December 29, 2019, the Company had a federal net operating loss carryforward (the “NOL”) of approximately $159,000, which will be fully utilized in the current year’s tax returns reducing 2020 consolidated taxable income by that amount.

If not used currently, the NOL expires within twenty years of origination in 2038.

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies.

The Company assessed whether a valuation allowance should be recorded against its deferred tax assets based on consideration of all available evidence using a "more likely than not" standard.

In assessing the need for a valuation allowance, the company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets.

In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses.

Future sources of taxable income were also considered in determining the amount of the recorded valuation allowance.

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:

Deferred tax assets (liabilities):

Net operating loss

Net operating loss carry forward

Property and equipment

Valuation allowance on deferred tax items

Deferred income tax liability

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.

Future tax benefit of impairment allowance

Paycheck Protection Program loan forgiveness

Total deferred tax liability

The following table summarizes the components of the provision for income taxes:

Current income tax expense

Deferred income taxes (benefit)

Total income tax expense (benefit)

Total income tax expense for the years ended January 3, 2021 and December 29, 2019 differed from the amounts computed by applying the U.S.

Federal statutory tax rate of 21% to pre-tax income as follows:

Total expense (benefit) computed by applying statutory federal rate

State income tax (benefit), net of federal tax benefit

Paycheck Protection Program loan forgiveness

Other permanent differences

Provision for income taxes (benefit)

Accounting Standards requires that deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet.

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.

The last three years of the Company’s tax years are subject to federal and state tax examination.

With few exceptions, the Company is no longer subject to U.S.

Federal and state income tax examinations by tax authorities for years before 2017.

Per Common Share Amounts

1 unchanged sentence

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 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.

Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period.

Common stock equivalents are excluded from the computation of diluted net income (loss) per share because their effect is anti-dilutive.

There were no potentially dilutive shares outstanding as of the years ending in 2020 and 2019, as both the $4.00 per share strike price of the 102,503 warrants and the $3.30 exercise price for the 16,401 Placement Agent warrants outstanding on January 3, 2021 and December 29, 2019 were exercisable at prices above the estimated fair market price of the underlying stock.

Other assets include 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.

5 unchanged sentences

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.

Actual results could differ from those estimates, and the differences could be significant.

Segment Reporting

1 unchanged sentence

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.

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.

Paycheck Protection Program and Liquidity and Capital Resources

For the 53 weeks ended January 3, 2021, the Company earned an after-tax profit of $791,922.

On January 3, 2021, the Company had $1,321,244 in cash and working capital of $371,693, an increase of $789,688 from the year-end deficit of $471,995.

COVID-19 has had, and likely will to continue to have a significant adverse 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, of that amount, $460,400 was borrowed under the Small Business Administration’s Paycheck Protection Program (“PPP”).

The Company has elected to account for the proceeds of the loan as a government grant under International Accounting Standard 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance.

Under IAS 20, the loan is initially recorded as deferred income on the balance sheet and forgiveness income is recognized on a systematic basis over the periods in which the qualifying expenses are incurred when the Company determines that the forgiveness is reasonably assured.

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 full in 2021.

As a result of forgiveness of the PPP advances, the loan forgiveness is reflected as “Other Income” in 2020.

Also, in May 2020, the Company borrowed $27,500 at no interest under the Minnesota Small Business Emergency Loan Program, and in addition, two of the Company’s mortgage lenders suspended and deferred current payments for a period of three months during the first half of 2020.

A total of $93,602 in payments were deferred under these programs.

The Company expects to have sufficient cash assets to meet its obligations for more than a year from the issuance of these consolidated financial statements.

NOTE 2 – PROPERTY AND EQUIPMENT

4 unchanged sentences

Net property and equipment

Depreciation expense for the years 2019 and 2018 was $211,087 and $225,814, respectively.

Depreciation expense for the fiscal years 2020 and 2019 was $187,687 and $211,087, respectively.

NOTE 3 – ACCRUED EXPENSES

Accrued expenses consisted of the following at the end of the respective fiscal years:

Accrued expenses consisted of the following at the end of the respective reporting periods:

Accrued real estate taxes

Accrued bonus compensation

Accrued payroll

3 unchanged sentences

Other accrued expenses

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.

NOTE 4 – STOCKHOLDERS’ EQUITY

During 2018, the Company issued 3,298,000 common shares in exchange for the member interests of BTND, LLC, 410,000 shares to Maxim Partners and others as part of the Share Exchange, and 130,000 common shares to consultants associated with the offering.

Upon closing of a private offering 205,002 common shares and 102,501 common stock warrants to purchase shares at $4.00 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, the placement agent was issued an aggregate of 16,401 five-year stock purchase warrants to purchase shares at $3.30 per share which are also outstanding at year-end.

The estimated the fair value of the warrants at the issuance date was approximately $15,421 and this amount was reflected as an additional cost of the offering.

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.

1 unchanged sentence

On October 11, 2019, the Company issued an aggregate of 4,500 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.

In April 2019, the Company’s Certificate of Incorporation was amended to increase the number of authorized preferred shares to 2,000,000 and the number authorized common shares to 50,000,000.

NOTE 5 – LONG-TERM DEBT

As a result of the many uncertainties surrounding the economy during the COVID-19 response, two of the Company’s mortgage lenders suspended and deferred current payments for a period of three months during the first half of 2020.

A total of $93,602 in payments were deferred under these programs.

The loans will continue to accrue interest at the stated rate, which is included in the principal.

The aggregate deferrals are due as balloon payments at the end of the stated terms of the notes.

The Company had the following long- term debt obligations as of:

2 unchanged sentences

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.

This note is secured by four of the Company's North Dakota locations and the personal guaranty of a shareholder of the Company.

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%.

2 unchanged sentences

This note is secured by one of the Company's South Dakota locations and the personal guaranty of a shareholder of the Company.

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.

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.

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.

The Note was paid in-full in August, 2020.

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%.

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Paul location and the personal guaranty of a shareholder of the Company.

Minnesota Small Business Emergency Loan dated April, 29, 2020 payable in monthly installments of $458.33 beginning December 15, 2020 which includes principal and interest at 0%.

This note is secured by the personal guaranty of a shareholder of the Company.

Less - unamortized debt issuance costs

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NOTE 6 – RELATED PARTY TRANSACTIONS

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.

BTND Trading, an entity separate from the Company owned by certain significant shareholders of the Company, from time-to-time BTND Trading has advanced funds to the Company.

On December 29, 2019, $207,729 was due to BTND Trading at 8% annual interest.

In August 2020, the amount due to BTND Trading was repaid in full.

In 2019, the Company made cash advances to Next Gen Ice, Inc.

(NGI) in the form of Series C Notes totaling a principal amount of $179,000.

The Company’s CEO, Gary Copperud, is Chairman of the Board of Directors of NGI and the Company’s Chief Operating Officer, Kenneth Brimmer, is also a member of the Board of Directors of NGI and serves as Chief Financial Officer of NGI on a contract basis.

Copperud and a limited liability company controlled by him together own approximately 34% of the outstanding equity of NGI.

On March 2, 2020, the Series C Notes were modified and the maturity extended to August 31, 2020.

As part of the Note modification, the Company received 179,000 shares of Common Stock in NGI from the founders of NGI representing approximately 2% of NGI shares outstanding.

The Company also holds warrants to purchase 358,000 shares at a price of $1.00 per share through March 23, 2023.

The common stock and common stock purchase warrants received by the Company were recorded at a value determined by the Company of $75,000.

This amount was also recorded at a discount to the note receivable and was recognized as interest income over the extended term of the Note.

The Company has determined that its investment in NGI does not have a readily determinable market value and therefore is carried at the cost determined by the Company at the time the shares and warrants were received.

The Series C Notes were repaid in August 2020, with interest, and currently there are no outstanding amounts due to the Company from NGI.

NOTE 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.

Approximately 83% of the Company’s purchases for the year ended January 3, 2021 were from one vendor.

On January 3, 2021, the amount due to the major vendor totaled $171,545.

In fiscal 2019, 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.

On December 29,2019, the amount due to this vendor was $222,926.

NOTE 8 – CONTINGENCIES

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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.

The Company has evaluated subsequent events through March 5, 2021 the date on which the consolidated financial statements were available to be issued, noting no subsequent events for disclosure.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data