BT Brands, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 3, 2021 (Unaudited) January 3, 2021 ASSETS CURRENT ASSETS Cash $ 2,078,812 $ 1,321,244 Receivables 31,751 19,030 Inventory 69,443 60,576 Prepaid expenses and other current assets 66,366 5,348 Total current assets 2,246,372 1,406,198 PROPERTY AND EQUIPMENT, net 1,546,038 1,632,457 LAND AND BUILDINGS HELD FOR SALE 258,751 258,751 INVESTMENT IN RELATED COMPANY 75,000 75,000 OTHER ASSETS, net 15,200 16,759 Total assets $ 4,141,361 $ 3,389,165 LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Current maturities of long-term debt $ 178,611 $ 245,306 Accounts payable 419,007 270,487 Accrued expenses 304,598 420,734 Income taxes payable 177,088 97,978 Total current liabilities 1,079,304 1,034,505 LONG-TERM DEBT, less current maturities 3,005,113 2,938,983 DEFERRED INCOME TAXES 176,000 118,000 Total liabilities 4,260,417 4,091,488 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT Preferred stock, $ .001 par value, 2,000,000 shares authorized, no shares outstanding at October 3, 2021 and January 3, 2021 - - Common stock, $ .002 par value, 50,000,000 authorized, 4,047,506 shares outstanding at October 3, 2021 and January 3, 2021 8,095 8,095 Additional paid-in capital 497,671 497,671 Accumulated deficit ( 624,822 ) ( 1,208,089 ) Total shareholders' deficit ( 119,056 ) ( 702,323 ) Total liabilities and shareholders' deficit $ 4,141,361 $ 3,389,165 See Notes to Condensed Consolidated Financial Statements 4 Table of Contents BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) 39 Weeks Ended, 13 Weeks Ended, October 3, 2021 September 27, 2020 October 3, 2021 September 27, 2020 SALES $ 6,604,554 $ 6,074,222 $ 2,280,999 $ 2,374,454 COSTS AND EXPENSES Restaurant operating expenses Food and paper costs 2,580,224 2,299,989 944,171 863,997 Labor costs 1,794,499 1,718,703 607,780 624,696 Occupancy costs 436,196 504,142 132,542 170,109 Other operating expenses 355,024 313,101 102,943 121,827 Depreciation and amortization 173,799 140,588 60,405 49,668 Impairment of assets held for sale - 100,000 - - General and administrative 295,397 371,455 74,415 188,292 Total costs and expenses 5,635,139 5,447,978 1,922,256 2,018,589 Income from operations 969,415 626,244 358,743 355,865 INTEREST EXPENSE ( 161,148 ) ( 136,347 ) ( 32,916 ) ( 45,188 ) INTEREST INCOME - 92,707 - 28,507 OTHER INCOME - 466,758 - - INCOME BEFORE TAXES 808,267 1,049,362 325,827 339,184 PROVISION FOR INCOME TAXES ( 225,000 ) ( 234,000 ) ( 90,000 ) ( 85,000 ) NET INCOME $ 583,267 $ 815,362 $ 235,827 $ 254,184 NET INCOME PER COMMON SHARE - Basic and Diluted $ 0.14 $ 0.20 $ 0.06 $ 0.06 WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTING PER COMMON SHARE AMOUNTS - Basic and Diluted 4,047,506 4,047,506 4,047,506 4,047,506 See Notes to Condensed Consolidated Financial Statements 5 Table of Contents BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited) Common Stock Additional Paid-in Accumulated For the 39-week periods - Shares Amount Capital (Deficit) Total Balances, January 3, 2021 4,047,502 $ 8,095 $ 497,671 $ ( 1,208,089 ) $ ( 702,323 ) Shares issued for fractional holdings 4 - - - - Net income - - - 583,267 583,268 Balances, October 3, 2021 4,047,506 $ 8,095 $ 497,671 $ ( 624,822 ) $ ( 119,056 ) Common Stock Additional Paid-in Accumulated Shares Amount Capital (Deficit) Total Balances, December 29, 2019 4,047,506 $ 8,095 $ 497,671 $ ( 1,902,081 ) $ ( 1,396,315 ) Net income - - - 815,362 815,362 Balances, September 27, 2020 4,047,506 $ 8,095 $ 497,671 $ ( 1,086,719 ) $ ( 580,953 ) Additional Common Stock Paid-in Accumulated For the 13-week periods - Shares Amount Capital (Deficit) Total Balances, July 4, 2021 4,047,506 $ 8,095 $ 497,671 $ ( 860,649 ) $ ( 354,883 ) Net income - - - 237,827 235,828 Balances, October 3, 2021 4,047,506 $ 8,095 $ 497,671 $ ( 624,822 ) $ ( 119,056 ) Additional Common Stock Paid-in Accumulated Shares Amount Capital (Deficit) Total Balances, June 28, 2020 4,047,506 $ 8,095 $ 497,671 $ ( 1,340,903 ) $ ( 835,137 ) Net income - - - 254,184 254,184 Balances, September 27, 2020 4,047,506 $ 8,095 $ 497,671 $ ( 1,086,719 ) $ ( 580,953 ) See Notes Condensed Consolidated Financial Statements 6 Table of Contents BT BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 39 Weeks Ended 39 Weeks Ended October 3, 2021 September 27, 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 583,267 $ 815,362 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 173,799 140,588 Amortization of debt issuance cost included in interest expense 55,555 3,882 Deferred taxes 58,000 ( 10,000 ) Payment on in-kind interest - 39,368 Impairment of assets held for sale - 100,000 Changes in operating assets and liabilities - Receivables ( 12,721 ) ( 6,365 ) Inventory ( 8,867 ) ( 1,186 ) Prepaid expenses and other current assets ( 29,195 ) 6,303 Accounts payable 148,520 70,999 Unearned vendor rebate - ( 3,668 ) Accrued expenses ( 116,136 ) 681 Income taxes payable 79,110 233,000 Net cash provided by operating activities 931,332 1,388,964 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 85,821 ) ( 57,736 ) Proceeds on notes due from related entity - 104,000 Net cash provided by (used in) investing activities ( 85,821 ) 46,264 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 3,107,100 77,500 Principal payments on long-term debt ( 3,113,521 ) ( 377,566 ) Payment of debt issuance costs ( 49,699 ) - Payment of deferred offering costs ( 31,823 ) - Net cash used in financing activities ( 87,943 ) ( 300,066 ) CHANGE IN CASH 757,568 1,135,162 CASH, BEGINNING OF PERIOD 1,321,244 258,101 CASH, END OF PERIOD $ 2,078,812 $ 1,393,263 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 127,800 $ 93,096 Transfer of property and equipment to assets held for sale $ - $ 189,640 Cash paid for Income taxes $ 88,006 $ - See Notes to Condensed Consolidated Financial Statements 7 Table of Contents BT BRANDS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of BT Brands, Inc., and its subsidiaries (the “Company”, “we”, “our”, “us”, or “BT Brands”) and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated in consolidation and have been prepared on a basis consistent in all material respects with the accounting policies for the fiscal year ended January 3, 2021. In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year. The accompanying Condensed Consolidated Balance Sheet as of October 3, 2021, does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of January 3, 2021, and the related notes thereto included in the Company’s Form 10-K for the fiscal year ended January 3, 2021. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP 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. The Company BT Brands, Inc. (the “Company”) was incorporated as Hartmax of NY Inc. on January 19, 2016, with the objective of acquiring an operating entity. Effective on July 30, 2018, the Company acquired 100 % of the ownership BTND, LLC. in exchange for common stock in the Company through a Share Exchange Agreement (“Share Exchange”) with members of BTND, LLC (“BTND”). 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 which is listed for sale. There were a total of ten operating restaurants on October 3, 2021. 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. Fiscal Year Period 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. All references to years in this report refer to the 26-week periods in the respective fiscal year periods. Fiscal 2021 is a 52-week year ending January 2, 2022. 8 Table of Contents 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. Receivables Receivables consist mainly of rebates due from a primary vendor. Inventory Inventory consists of food, beverages and supplies and is stated at lower of cost (first-in, first-out method) or net realizable value. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives which range from three to thirty years. The Company reviews long-lived assets to determine if the carrying value of these assets may not be recoverable based on estimated cash flows. Assets are reviewed at the lowest level for which cash flows can be identified, which is at the restaurant level. In determining future cash flows, significant estimates are made by the Company with respect to future operating results of each restaurant over its remaining life. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. Assets Held for Sale From time-to-time the Company may sell an existing operating unit or may close an operating unit and list the property for sale. The carrying value of property in the St. Louis area was fully reserved for in 2020. In September of 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 fiscal 2019 it was concluded to record a charge of $ 93,488 for impairment of the value of the Richmond location and in the second quarter of 2020 an additional $ 100,000 impairment charge was recorded. The Company believes the Richmond property will be sold at or above its current carrying cost of assets held for sale. Income Taxes We provide for income taxes under (Accounting Standards Codification (ASC), 740), Accounting for Income Taxes. ASC 740 using an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted, as necessary. The Company estimates a current tax provision for federal and state income taxes at the combined statutory rate of 27.5 % The Company currently has 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 and all periods since inception remain open for examination. 9 Table of Contents Per Common Share Amounts Net income per common share is computed pursuant to section 260-10-45 of the FASB ASC. Basic net income per share is computed by dividing net income 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 if their effect would be anti-dilutive. There were no potentially dilutive shares outstanding as of the periods ending in 2021 and 2020, as the strike price for warrants outstanding was above the fair market price of the underlying stock in both periods. Other Assets Other assets are the allocated fair value of the acquired Dairy Queen franchise agreement related to the Company’s location in Ham Lake, Minnesota, which is being amortized over an estimated useful life of 14 years. NOTE 2 – PROPERTY AND EQUIPMENT Property and equipment consisted of the following at: October 3, 2021 January 3, 2021 Land $ 485,239 $ 485,239 Equipment 2,566,295 2,497,576 Buildings 1,322,085 1,306,896 Total property and equipment 4,373,619 4,289,711 Accumulated depreciation ( 2,568,830 ) ( 2,398,503 ) Less - property held for sale ( 258,751 ) ( 258,751 ) Net property and equipment $ 1,546,038 $ 1,632,457 Depreciation expense for the 39-week periods in 2021 and 2020 was $ 172,261 and $ 139,313 , respectively. NOTE 3 – ACCRUED EXPENSES Accrued expenses consisted of the following at: October 3, 2021 January 3, 2021 Accrued real estate taxes $ 103,129 $ 106,935 Accrued bonus compensation 7,000 162,000 Accrued payroll 93,217 56,139 Accrued payroll taxes 9,699 8,519 Accrued sales taxes payable 59,897 66,632 Accrued vacation pay 17,663 19,657 Other accrued expenses 13,993 852 $ 304,598 $ 420,734 10 Table of Contents NOTE 4 – LONG TERM DEBT The Company’s long-term debt is as follows: October 3, 2021 January 3, 2021 Notes payable to bank with interest at 4.75%. Secured by eight of the Company's locations and the personal guaranty of a Company shareholder. These notes were paid in full on June 27, 2021. $ - $ 2,884,650 Three notes payable to bank dated June 28, 2021 due in monthly installments totaling $22,213 which includes principal and interest at fixed rate of 3.45% through June 28, 2031. Beginning in July 2031, the interest rate will be equal to the greater of the "prime rate" plus .75%, or 3.45% . These notes mature on June 28, 2036. The notes are secured by mortgages covering the Company's ten operating locations. The notes are guaranteed by BT Brands, Inc. and a shareholder of the Company. 3,076,200 - 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. This note was paid in full on April 6, 2021. - 185,219 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. 133,318 141,125 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. 23,375 27,500 3,232,893 3,238,494 Less - unamortized debt issuance costs ( 48,349 ) ( 54,205 ) Current maturities ( 178,611 ) ( 245,306 ) Total $ 3,005,933 $ 2,938,983 11 Table of Contents NOTE 5 – RELATED PARTY TRANSACTIONS 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 (“Notes”). 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 part-time contract basis. Mr. Copperud, and a limited liability company controlled by him together own 34 % of the outstanding equity of NGI. On March 2, 2020, the 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 Next Gen Ice from the founders of NGI representing 2 % of NGI shares outstanding. The Company also holds warrants to purchase 358,000 shares of common stock at a price of $ 1.00 per share through March 31, 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 Notes. 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 Notes were repaid in August 2020, with interest, and currently there are no outstanding amounts due to the Company from NGI. NOTE 6 – CONTINGENCIES During 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 7 – SUBSEQUENT EVENT Effective November 12, 2021, the Company entered into an Underwriting Agreement with Maxim Group LLC. and Joseph Gunnar & Company, LLC as representatives of an Underwriting Group to purchase 2,400,000 units, each unit consisting of one share of Common Stock and one five-year stock purchase warrant to purchase an additional share at $ 5.50 per share. Under the Underwriting Agreement, the gross proceeds to the Company are approximately $ 4.55 per share after deducting underwriting discounts and expenses. The Company also granted to the Underwriters an “overallotment option” wherein the Underwriters were granted the option to purchase an additional 300,000 units for 30 days following the offering. We estimate that the net proceeds from the sale of the units, after deducting underwriting discounts and commissions and estimated offering expenses incurred by us, will be approximately $ 10,665,000 . If the underwriters fully exercise the over-allotment option, the net proceeds will be approximately $ 12,321,000 . 12 Table of Contents