What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-18 compared with 2020-11-10 · 111 added, 132 removed, 99 unchanged (71% of the section changed)

1 unchanged sentence

The following discussion of financial condition, results of operations, liquidity and capital resources of BT Brands, Inc.

and its wholly-owned subsidiaries (together, the “Company”) should be read in conjunction with the Company’s condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K for the year ended December 29, 2019.

We own and operate ten fast food restaurants, including nine Burger Time restaurants and one Dairy Queen restaurant, all of which are in the North Central region of the United States.

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

Business Trends;

Effects of COVID-19 on our Business

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic.

This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally.

The spread of the virus has disrupted the normal operations of many businesses including ours.

In response to this outbreak, many state and local authorities have mandated the temporary closure and partial closure of non-essential businesses including dine-in restaurant activity.

While we have experienced some product shortages, for the most part, we have continued to operate all of our locations on a drive-through basis in some cases temporarily eliminating access to the walk-up service window and any indoor seating which is available at our Dairy Queen location and one other location.

Also, most of our locations have outdoor picnic table seating for use in nicer summer weather, and generally these dining areas were closed earlier this year, however, have recently opened.

In October we closed our Moorhead location for approximately 3 days as a result of confirmed case of the Coronavirus and we performed a deep cleaning of the location and testing of our crewmembers before reopening, In November 2020, we had a similar two-day closure of our Minot location.

At this time, it is impossible to predict 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 and regulations surrounding government response to the pandemic are constantly changing, however, to-date, the impact of restaurant closures and shelter in-place orders have generally been positive for our business as drive-through dining locations are an attractive alternative to consumers during a time of the reduced dining.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, providing aid small businesses through programs administered by the Small Business Administration (“SBA”).

The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.

The loan may be forgiven if the funds are used for payroll and other qualified expenses.

Given the absence of any funding alternatives, the Company applied for and was granted loans totaling $460,400 under the United States Small Business Administration’s Payroll Protection Program.

The Company has used these funds to meet payroll expenses and the Company expects and has applied to have the PPP loans forgiven as provided by the CARES Act.

The Company’s BTNDDQ, L.L.C.

subsidiary also received a $27,500 loan from a State of Minnesota Small Business Emergency Loan Program.

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

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

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

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

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

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

Material Trends and Uncertainties

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

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

The major companies in the restaurant industry have rapidly adopted and developed applications for the smart phone and mobile delivery, have aggressively expanded drive-through operations and have developed loyalty programs and data base marketing supported by a robust technology platform.

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

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

We expect these significant trends will continue.

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

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

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

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

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

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

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

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

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

It is crucial for the Company to develop and maintain programs to attract and retain quality employees.

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

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

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

South Dakota has established a minimum wage of $9.10 per hour which is annually adjusted to increase with the cost of living.

Minnesota’s minimum-wage rate for small employers, such as us, is $8.04 per hour.

Our hourly employees earn a wage of on average of approximately $12 to $13 per hour.

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

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

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

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

Our stores have remained open for drive-through business.

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

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

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

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

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

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

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

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

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

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

The conditions may influence restaurant customer traffic and our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level.

Further, such conditions could impact the availability of the menu items we offer and the ability of suppliers to deliver such products.

We also may be adversely affected if jurisdictions in which we have restaurants impose mandatory closures, seek voluntary closures or impose restrictions on operations.

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

Growth Strategy and Outlook

We are focused on growing our business and building value for our shareholders.

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

As the economy begins to stabilize, we expect to pursue the acquisition of multi-unit restaurant concepts and individual restaurant properties at attractive multiples of earnings.

We expect to pursue the acquisition of multi-unit restaurant concepts and individual restaurant properties at attractive multiples of earnings.

Once acquired, we will operate the business or businesses with a shared central management organization.

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Our business plan is to grow through acquisitions in the foodservice industry.

In addition, we may develop additional restaurant locations through the acquisition and conversion of existing properties.

We also expect to identify and pursue the acquisition of existing restaurant units and multi-unit chains which could be operated and expanded through the addition of new locations.

In addition, we may develop additional Burger Time locations through the acquisition and conversion of existing properties.

We also expect to identify and complete acquisitions of existing restaurant units and multi-unit chains which could be operated and expanded through the addition of new locations.

Our growth strategy is predicated upon (i) building or acquiring new restaurants, (ii) growing comparable restaurant sales and profits, and (iii) quickly and cost-effectively scaling our growth while leveraging our corporate services.

In the wake of the COVID pandemic, we believe that we will have opportunities to acquire restaurant businesses at attractive valuations.

We intend to follow a disciplined strategy of evaluating acquisition opportunities to determine the operations are in markets and possess qualities meeting our demographic, real estate and investment criteria.

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

We intend to follow a disciplined strategy of evaluating acquisition opportunities to determine the operations are in markets meeting our demographic, real estate and investment criteria.

Our ability to successfully evaluate an acquisition opportunity and to understand the competitive landscape of a new market will be critical in making a successful acquisition.

Additionally, our ability to identify, recruit and hire both salaried and hourly staff will impact our ability to expand as will changes in the legal environment, including increases to the minimum wage, which could impact our ability to expand into certain areas.

Further, we believe that prior to the effects of the Pandemic, there was an oversaturation of restaurants and many of these restaurants may no longer be economically viable.

Further, we believe that there has been an oversaturation of restaurants in certain areas which could decrease the number of markets that we believe will be attractive to expand into.

Even if we can acquire restaurants, the new restaurants, and our Company, will be subject to various risks, some of which, including factors impacting our customers, such as declining economic conditions, are entirely out of our control.

We will seek to quickly and cost-effectively scale our growth by leveraging our general and administrative costs.

References below to “Fiscal 2020” are for the periods ended during the 2020 fiscal year and to “Fiscal 2019” are for the periods ended during the 2019 fiscal year.

Results of Operations for the Thirteen Weeks Ended September 27, 2020 and the Thirteen Weeks Ended September 29, 2019

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

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

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

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

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13 Weeks Ended,

September 27,

September 29,

COSTS AND EXPENSES

Restaurant operating expenses

Food and paper costs

2 unchanged sentences

Depreciation and amortization

Impairment of assets held for sale

General and administrative

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Income (loss) from operations

INTEREST INCOME

INTEREST EXPENSE

INCOME BEFORE TAXES

PROVISION FOR INCOME TAXES

Net Revenues:

Net sales for Fiscal third quarter of 2020 increased $524,287 or 28.3% to $2,374,454 from $1,850,167 in Fiscal 2019.

The sales increase was principally the result of favorable impact on our drive-through locations of the COVID-19 government restrictions on restaurants resulting in an increase in consumers choosing Burger Time as a dining alternative.

In addition, the Company implemented a price increase in the third quarter which increased sales an estimated 5% to 10%.

Restaurant unit sales for the period ranged from a low of $156,700 to a high of $299,000 and average sales for each Burger Time unit during the period was approximately $217,300 in 2020 an increase from $170,400 in 2019.

Costs of Sales - food and paper:

Cost of sales - food and paper for third quarter of fiscal 2020 decreased as a percentage of sales to 36.4% of restaurant sales from 39.3% of restaurant sales in the third quarter of fiscal 2019.

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

Restaurant Operating Costs:

Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, impairment charges and depreciation and amortization) as a percent of restaurant sales decreased significantly to 75.0% of sales in the third fiscal quarter of 2020 from 84.4% in the same period of fiscal 2019.

This was due primarily to significant increase in sales which favorably impacted both fixed and semi-fixed costs and the matters discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.

For the third quarter of fiscal 2020, labor and benefits costs increased by $54,476 to $624,696, however, labor costs as a percentage of sales declined to 26.3% of restaurant sales from 30.5% of restaurant sales in fiscal 2019 third quarter.

The decrease in the percentage was the result of the leveraging of existing staffing levels as sales increased significantly from the year earlier.

The Company continued to benefit from minimal turnover in its unit restaurant management which tends to cause unfavorable variations in labor costs.

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

Occupancy and Other Operating Expenses

For the third fiscal quarter of 2020, occupancy and other expenses increased $27,714 to 12.3% of sales or $291,936 from $264,222 (14.2% of restaurant sales) in similar period in 2019.

Depreciation and Amortization Expense:

For third fiscal quarter of 2020, depreciation and amortization decreased $1,409 to $49,688 (2.1% of sales) from $51,097 (2.8% of sales) in the same period in fiscal of 2019.

General and Administrative Costs

General and administrative costs increased 38.8% or $52,597 from $135,695 (7.3% of sales) in the third fiscal quarter of 2019 to $188,292 (7.9% of sales) in the third quarter of 2020.

The increase in general and administrative costs is primarily attributable to bonus paid to the CEO in third quarter and an increase in CEO compensation.

Income from Operations

Income from operations for the 13-week period was $355,865 in fiscal 2020 compared to income from operations of $101,388 in the similar period in 2019.

The change in income from operations in fiscal 2020 compared to fiscal 2019 was due to the significant increase in profitability of the Company’s stores partially offset by an increase in General and Administrative Expense and the matters discussed in the “Net Revenues” and “Restaurant Operating Costs” sections above.

Restaurant-level EBITDA :

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

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

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

Restaurant-level EBITDA should not be considered a substitute for, or superior to, operating income, which is calculated in accordance with GAAP, and the reconciliations to operating income set forth below should be carefully evaluated.

We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization and impairment charges.

General and administrative costs are excluded as they are generally not specifically identifiable to restaurant specific costs.

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

13-Week Period

September 29,

September 27,

Reconciliation:

Income from operations

Depreciation and amortization

General and administrative, corporate level expenses

Restaurant-level EBITDA

Restaurant-level EBITDA margin

Results of Operations for the Thirty-Nine Weeks Ended September 27, 2020 and the Thirty-Nine Weeks Ended September 29, 2019

39 Weeks Ended,

September 27,

September 29,

COSTS AND EXPENSES

Restaurant operating expenses

Food and paper costs

Occupancy costs

Other operating expenses

Depreciation and amortization

Impairment of assets held for sale

General and administrative

Total costs and expenses

Income (loss) from operations

INTEREST INCOME

INTEREST EXPENSE

INCOME (LOSS) BEFORE TAXES

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Net Revenues:

Net sales for 39-week period representing the first three fiscal quarters of 2020 increased $958,061 or 18.7% to $6,074,222 from $5,116,161 in fiscal 2019.

The increase in sales was principally the result of favorable impact in on our drive-through locations of the COVID-19 government restricts on dining alternatives resulting in consumers choosing Burger Time combined with generally favorable weather conditions during the period.

Restaurant sales for the 39-week period for our Burger Time locations ranged from a low of $387,661 to high of $776,185 and average sales for each Burger Time unit during the period was approximately $556,000 in 2020 an increase from $476,600 in 2019.

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

The sales increase was attributable principally to the favorable impact on our drive-through locations because of the COVID-19 related government restrictions on restaurants resulting in an increase in consumers choosing Burger Time as a dining alternative.

In addition, the Company implemented a price increase in the second half of 2020 which increased sales an estimated 5% to 10%.

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

Costs of Sales - food and paper:

Cost of sales - food and paper for the first half of fiscal 2020 decreased as a percentage of sales slightly to 37.9% of restaurant sales from 39.5% of restaurant sales in the similar period in 2019.

This decrease was mainly the result of the overall increase in business activity combined with a relatively stable cost environment with average beef prices of approximately of $2.51 per pound in 2020 and a menu price increase taken near the beginning of the third quarter.

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

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

Restaurant Operating Costs:

Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, impairment charge and depreciation and amortization) as a percent of restaurant sales declined to 79.7% of sales in fiscal 2020 from 86.8% in fiscal 2019.

This was due primarily to the increase in sales activity and its impact as further discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.

For Fiscal 2020, labor and benefits costs decreased to 28.3% of restaurant sales from 31.7% of restaurant sales in Fiscal 2019.

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

Restaurant operating costs (which refer to all the costs associated with the operation of our restaurants, but do not include general and administrative costs, and depreciation and amortization) as a percent of restaurant sales decreased significantly to 80.2% of sales in the first fiscal quarter of 2021 from 97.6% in the same period of fiscal 2020.

This decrease was due primarily to a significant increase in sales which favorably impacted both fixed and semi-fixed costs and the matters discussed in the “Cost of Sales,” “Labor Costs,” “Occupancy and Other Operating Cost” sections below.

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

The decrease in the percentage was the result of the leveraging of existing staffing levels as sales increased significantly from the year earlier.

The Company continued to benefit from minimal turnover in its unit restaurant management which tends to cause unfavorable variations in labor costs.

Payroll costs are semi-variable in nature, meaning that they do not change proportionally to changes in revenue.

Occupancy and Other Operating Expenses

For the first 26 weeks of Fiscal 2020, occupancy and other expenses increased $18,989 representing 13.5% of sales or $817,243 from $798,257 (15.6% of restaurant sales) in the similar period in 2019.

Many of these costs are fixed and the lower percentage reflect the increase in restaurant sales.

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

Depreciation and Amortization Expense:

Depreciation and amortization expense declined 18.1% or $30,975 to $140,588 (2.3% of sales) from $169,668 (3.3% of sales) in fiscal 2019 as more of the Company’s fixed assets became fully depreciated.

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

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

General and Administrative Costs

General and administrative costs decreased 11.2% or $57,408 from $428,863 (8.2% of sales) in the 39-week period of fiscal 2019 to $371,455 (6.1% of sales).

The decrease in general and administrative costs is primarily attributable to the elimination of a general manager position offset by higher CEO compensation in the fiscal third quarter period.

Income (loss) from Operations

The income from operations was $626,244 in the 39-week period of fiscal 2020 compared to a loss from operations of $19,587 in same period of fiscal 2019.

The change in income from operations in fiscal 2020 compared to fiscal 20120 was due primarily to the reduction in General and Administrative Expense and the matters discussed in the “Net Revenues” and “Restaurant Operating Costs” sections above.

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

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

Income from Operations

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

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

Restaurant-level EBITDA :

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We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, depreciation and amortization and impairment charges.

We define restaurant-level EBITDA as operating income before pre-opening costs, if any, general and administrative costs, and depreciation and amortization.

General and administrative costs are excluded as they are generally not specifically identifiable to restaurant specific costs.

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

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

13-Week Period

September 27,

September 29,

Reconciliation:

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Liquidity and Capital Resources

The condensed consolidated financial statements have been prepared on a going concern basis.

The Company’s overall liquidity has improved from a year ago.

For the 39 weeks ended September 27, 2020, the Company earned an after-tax profit of $815,362.

On September 27, 2020, the Company had $1,393,263 in cash and working capital of $371,190 an increase of $862,517 from the year-end deficit of $468,327.

Covid-19 is having a significant adverse impact on the United States economy.

It is difficult to predict the ultimate impact of the Covid-19 pandemic on the Company’s operating results and financial condition.

The coronavirus global pandemic is significantly harming the United States economy.

Many businesses have closed, and many businesses are subject to government restrictions.

In addition, many people are limiting activities outside of the home.

At this time, all of our units continue to operate, however, it is impossible to predict 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.

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.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, and additional avenues of relief may be available to small businesses through programs administered by the Small Business Administration (“SBA”).

Given the absence of any funding alternatives, the Company applied for and was granted loans totaling $460,400 under the Small Business Administration Payroll Protection Program.

The Company expects to use these funds to meet payroll expenses.

The Company’s BTNDDQ, L.L.C.

subsidiary also received a $27,500 no-interest loan from a State of Minnesota Small Business Emergency loan program.

The Company expects to have sufficient cash assets to meet its obligations for the next twelve months.

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

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

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

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

Paul location at the beginning of the second fiscal quarter.

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

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

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

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

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

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

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

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

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

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

We anticipate that working capital deficits may be incurred in the future and possibly increase.

Our primary sources of liquidity and cash flows are operating cash flows and cash on hand.

We use this to service debt and to maintain our stores to operate in an efficient manner, and to increase our working capital.

Our working capital position benefits from the fact that we collect cash from sales from our customers at the point of sale, or within a few days from our credit card processor, and in general, payments to our vendors are not due for thirty days.

Summary of Cash Flows

Cash Flows Provided by Operating Activities

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

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

Cash Flows Used in Investing Activities

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

Cash Flows Used in Financing Activities

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

Contractual Obligations

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

Our monthly required payment is approximately $32,000.

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

Qualitative and Quantitative Disclosure about Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis