BT Brands, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. BT BRANDS, INC. CONSOLIDATED FINANCIAL STATEMENTS JANUARY 3, 2021 AND DECEMBER 29, 2019 TOGETHER WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT 23 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 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 24 Table of Contents BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 3, 2021 December 29, 2019 ASSETS CURRENT ASSETS Cash $ 1,321,244 $ 258,101 Receivables 19,030 15,363 Inventory 60,576 56,432 Prepaid expenses 5,348 6,928 Total current assets 1,406,198 336,824 PROPERTY AND EQUIPMENT, net 1,632,457 1,650,012 LAND AND BUILDINGS HELD FOR SALE 258,751 449,244 INVESTMENT IN AND NOTES RECEIVABLE FROM RELATED COMPANY 75,000 179,000 OTHER ASSETS, net 16,759 18,459 Total assets $ 3,389,165 $ 2,633,539 LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Current maturities of long-term debt $ 245,306 $ 277,666 Accounts payable 270,487 321,855 Accrued expenses 420,734 206,400 Income taxes payable 97,978 2,898 Total current liabilities 1,034,505 808,819 LONG-TERM DEBT, less current maturities 2,938,983 3,221,035 DEFERRED INCOME TAXES 118,000 98,000 Total liabilities 4,091,488 4,127,854 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT 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 8,095 8,095 Additional paid-in capital 497,671 497,671 Accumulated deficit (1,208,089 ) (2,000,081 ) Total shareholders' deficit (702,323 ) (1,494,315 ) Total liabilities and shareholders' deficit $ 3,389,165 $ 2,633,539 See Notes to Consolidated Financial Statements 25 Table of Contents BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME 53 Weeks Ended, 52 Weeks Ended, January 3, 2021 December 29, 2019 SALES $ 8,159,796 $ 6,480,564 COSTS AND EXPENSES Restaurant operating expenses Food and paper costs 3,090,816 2,574,388 Labor costs 2,335,949 2,140,157 Occupancy costs 709,704 718,905 Other operating expenses 426,553 353,502 Depreciation and amortization 189,389 212,787 Impairment of assets held for sale 190,493 93,488 Impairment of goodwill - 200,000 General and administrative 687,524 560,885 Total costs and expenses 7,630,428 6,854,112 Income (loss) from operations 529,368 (373,548 ) INTEREST INCOME 103,623 4,402 OTHER INCOME 466,758 8,410 INTEREST EXPENSE (177,757 ) (207,841 ) INCOME BEFORE TAXES 921,992 (568,577 ) INCOME TAX (PROVISION) BENEFIT (130,000 ) 102,000 NET INCOME (LOSS) $ 791,992 $ (466,577 ) NET INCOME (LOSS) PER COMMON SHARE - Basic and Diluited $ 0.20 $ (0.12 ) WEIGHTED AVERAGE SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluited 4,047,502 4,043,989 See Notes to Consolidated Financial Statements 26 Table of Contents BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT Additional Common Stock Paid-in Accumulated Shares Amount Capital (Deficit) Total Balances, December 31, 2018 4,043,002 $ 8,086 $ 484,180 $ (1,533,504 ) $ (1,041,238 ) Net (loss) - - - (466,577 ) (466,577 ) Issuance of 4,500 Shares at Private Placement Value of $3.00 4,500 9 13,491 - 13,500 Balances, December 29, 2019 4,047,502 $ 8,095 $ 497,671 $ (2,000,081 ) $ (1,494,315 ) Net income - - - 791,992 791,992 Balances, January 3, 2021 4,047,502 $ 8,095 $ 497,671 $ (1,208,089 ) $ (702,323 ) See Notes to Consolidated Financial Statements 27 Table of Contents BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 53 Weeks Ended 52 Weeks Ended January 3, 2021 December 29, 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) $ 791,922 $ (466,577 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities- Deferred interest expense paid in-kind 39,368 - Noncash interest income (75,000 ) - Stock-based incentive compensation - 13,500 Impairment of assets held for sale 190,493 93,488 Depreciation 187,687 211,087 Amortization of franchise agreement 1,700 1,700 Amortization of debt issuance cost 5,176 5,176 Loss on sale of property and equipment - 1,800 Write-off of deferred offering costs - 40,000 Deferred tax liability, net 20,000 (102,000 ) Impairment of goodwill - 200,000 Changes in operating assets and liabilities Receivables (3,667 ) 4,878 Inventory (4,144 ) 2,152 Prepaid expenses 1,580 1,282 Accounts payable (67,080 ) 33,196 Accrued expenses 214,334 21,634 Income taxes payable 95,080 (10,827 ) Net cash provided by operating activities 1,397,449 50,489 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds (advances to) from investment in related company 179,000 (179,000 ) Purchase of property and equipment (154,420 ) - Net cash provided by (used in) investing activities 24,580 (179,000 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 77,500 - Principal payments on long-term debt (436,456 ) (276,899 ) Net cash used in financing activities (358,956 ) (276,899 ) CHANGE IN CASH 1,063,073 (405,410 ) CASH, BEGINNING OF YEAR 258,101 663,511 - CASH, END OF YEAR $ 1,321,174 $ 258,101 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 133,213 $ 202,101 SUPPLEMENTAL DISCLOSURE OF INVESTING AND FINANCING ACTIVITIES Transfer of property and equipment to assets held for sale $ - $ 189,640 Purchase of property and equipment included in accounts payable $ 15,712 $ - See Notes to Consolidated Financial Statements 28 Table of Contents NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 (“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 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 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. 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 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. 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. 29 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 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 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 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. Cash For purposes of reporting cash and cash flows, cash is net of outstanding checks and includes, amounts on deposit at banks and deposits in transit. 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. 30 Table of Contents 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 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. 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 The Company expenses advertising and marketing costs as incurred. Advertising expense for fiscal 2020 and 2019 totaled $29,924 and $49,618, respectively. 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. 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. 31 Table of Contents 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: 2020 2019 Net operating loss carry forward $ - $ 43,000 Property and equipment (183,000 ) (167,000 ) Future tax benefit of impairment allowance 78,000 26,000 Paycheck Protection Program loan forgiveness (13,000 ) Total deferred tax liability $ (118,000 ) $ (98,000 ) The following table summarizes the components of the provision for income taxes: 2020 2019 Current income tax expense $ 110,000 $ - Deferred income taxes (benefit) 20,000 (102,000 ) Total income tax expense (benefit) $ 130,000 $ (102,000 ) 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: 2020 2019 Total expense (benefit) computed by applying statutory federal rate $ 193,600 $ (119,500 ) State income tax (benefit), net of federal tax benefit 47,400 (36,000 ) Paycheck Protection Program loan forgiveness (111,000 ) - Other permanent differences - 53,500 Provision for income taxes (benefit) $ 130,000 $ (102,500 ) 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 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. 32 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 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 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. Accumulated amortization was approximately $9,000 and $7,000 at the end of 2020 and 2019, 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 significant. 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. 33 Table of Contents 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 Property and equipment consisted of the following at end of the respective fiscal years: 1/ 3/2021 12/ 29/2019 Land $ 485,239 $ 555,885 Equipment 2,497,576 2,390,545 Buildings 1,306,896 1,363,642 Total property and equipment 4,289,711 4,310,072 Accumulated depreciation (2,398,503 ) (2,210,816 ) Less - property held for sale (258,751 ) (449,244 ) Net property and equipment $ 1,632,457 $ 1,650,012 Depreciation expense for the fiscal years 2020 and 2019 was $187,687 and $211,087, respectively. 34 Table of Contents NOTE 3 – ACCRUED EXPENSES Accrued expenses consisted of the following at the end of the respective reporting periods: 1/ 3/2021 12/ 29/2019 Accrued real estate taxes $ 106,935 $ 66,959 Accrued bonus compensation 162,000 - Accrued payroll 56,139 69,572 Accrued payroll taxes 8,519 7,058 Accrued sales taxes payable 66,632 35,380 Accrued vacation pay 19,657 23,204 Other accrued expenses 852 4,227 $ 420,734 $ 206,400 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. 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 4,500 shares of common stock as stock awards to 30 employees of the Company. 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. 35 Table of Contents 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: 1/3/2021 12/ 29/2019 Note payable to bank dated October 30, 2015 due in monthly installments of $6,916 through October 30, 2030, which includes principal and interest at a fixed rate of 4.75%. This note is secured by two of the Company's Minnesota locations and the personal guaranty of a shareholder of the Company. $ 670,334 $ 699,311 Note payable to bank dated November 16, 2015 due in monthly installments of $14,846, which includes principal and interest at fixed rate of 4.75% through November 16, 2030. This note is secured by four of the Company's North Dakota locations and the personal guaranty of a shareholder of the Company. 1,447,439 1,509,435 Note payable to bank dated October 10, 2015 due in monthly installments of $4,153 through March 11, 2030, which includes principal and interest at fixed rate of 4.75%. This note is secured by the Company's Dairy Queen location and the personal guaranty of a shareholder of the Company. 397,655 414,562 Note payable to bank dated March 11, 2016 due in monthly installments of $3,692 through March 11, 2031 which includes principal and interest at a fixed rate of 4.75%. This note is secured by one of the Company's South Dakota locations and the personal guaranty of a shareholder of the Company. 369,222 384,208 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 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. 141,125 151,234 Unsecured 8% notes payable to an entity controlled by shareholders of the Company dated December 26, 2017 originally due on demand after June 1, 2020. The Note was paid in-full in August, 2020. - 207,264 Note payable to bank dated December 28, 2018 due in monthly installments of $1,644 through December 31, 2023 which includes principal and interest at a fixed rate of 5.50%. This note is secured by the West St. Paul location and the personal guaranty of a shareholder of the Company. 185,219 192,068 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. 27,500 - 3,238,494 3,558,082 Less - unamortized debt issuance costs (54,205 ) (59,381 ) Current maturities (245,306 ) (277,666 ) Total $ 2,938,983 $ 3,221,035 36 Table of Contents Scheduled maturities of long-term debt, excluding unamortized debt issuance costs, are as follows 1/2/2022 $ 245,306 12/31/2023 256,655 12/29/2024 423,345 12/28/2025 270,561 1/3/2027 283,104 Thereafter 1,759,523 $ 3,238,494 NOTE 6 – RELATED PARTY TRANSACTIONS BTND Trading 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. Next Gen Ice In 2019, the Company made cash advances to Next Gen Ice, Inc. (NGI) in the form of Series C Notes totaling a principal amount of $179,000. The Company’s CEO, Gary Copperud, is Chairman of the Board of Directors of NGI and the Company’s Chief Operating Officer, Kenneth Brimmer, is also a member of the Board of Directors of NGI and serves as Chief Financial Officer of NGI on a contract basis. Mr. Copperud and a limited liability company controlled by him together own approximately 34% of the outstanding equity of NGI. On March 2, 2020, the Series C Notes were modified and the maturity extended to August 31, 2020. As part of the Note modification, the Company received 179,000 shares of Common Stock in 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 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. On December 29,2019, the amount due to this vendor was $222,926. 37 Table of Contents 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 March 5, 2021 the date on which the consolidated financial statements were available to be issued, noting no subsequent events for disclosure. 38 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None .