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Item 8. Financial Statements and Supplementary Data

2022-03-17 compared with 2021-03-11 · 201 added, 177 removed, 186 unchanged (67% of the section changed)

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

Report of Independent Registered Public Accounting Firm

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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.

(the “Company”) as of January 2, 2022 and January 3, 2021 and the related consolidated statements of income, shareholders’ equity (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 2, 2022 and January 3, 2021 and the results of its operations and its cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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March 16, 2022

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

BoulayGroup.com

Member of Prime Global, An Association of Independent Accounting Firms

BT BRANDS, INC.

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CURRENT ASSETS

Prepaid expenses

Prepaid expenses and other current assets

Total current assets

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LAND AND BUILDINGS HELD FOR SALE

INVESTMENT IN AND NOTES RECEIVABLE FROM RELATED COMPANY

INVESTMENT IN RELATED COMPANY

OTHER ASSETS, net

LIABILITIES AND SHAREHOLDERS' DEFICIT

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

Current maturities of long-term debt

Accounts payable

Current maturities of long-term debt

Accrued expenses

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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

SHAREHOLDERS' EQUITY (DEFICIT)

Preferred stock, $ .001 par value, 2,000,000 shares authorized,

no shares outstanding at January 2, 2022 and January 3, 2021

Common stock, $ .002 par value, 50,000,000 authorized, 6,447,506

and 4,047,502 shares issued and outstanding at January 2, 2022

and January 3, 2021, respecitvely

Additional paid-in capital

Accumulated deficit

Total shareholders' deficit

Total liabilities and shareholders' deficit

( 1,208,089 )

Total shareholders' equity (deficit)

Total liabilities and shareholders' equity (deficit)

See Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF INCOME

52 Weeks Ended,

53 Weeks Ended,

COSTS AND EXPENSES

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Impairment of assets held for sale

Impairment of goodwill

General and administrative

Total costs and expenses

Income (loss) from operations

Income from operations

INTEREST INCOME

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INCOME BEFORE TAXES

INCOME TAX (PROVISION) BENEFIT

NET INCOME (LOSS)

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

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

INCOME TAX PROVISION

NET INCOME PER COMMON SHARE - Basic and Diluted

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

See Notes to Consolidated Financial Statements

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

Paid-in Capital

Balances, December 29, 2019

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$ ( 1,494,315 )

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

Balances, December 29, 2019

$ (2,000,081 )

Balances, January 3, 2021

( 1,208,089 )

Common shares issued for fractional holdings

Stock-based compensation

Aggregate value of warrants purchased by underwriter

Issuance of 2,400,000 shares of common stock and

2,760,000 common stock purchase warrants, net of

$1,315,422 in fees and expenses and $360,000 in excess

of fair value of warrants puchased by underwriter

Balances, January 2, 2022

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CONSOLIDATED STATEMENTS OF CASH FLOWS

52 Weeks Ended

53 Weeks Ended

January 2, 2022

January 3, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (loss)

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

Deferred interest expense paid in-kind

Adjustments to reconcile net income to net cash provided by operating activities-

Depreciation and amortization

Amortization of debt issuance cost included in interest expense

Noncash interest income

Stock-based incentive compensation

Deferred taxes

Stock-based compensation

Deferred interest paid in-kind

Impairment of assets held for sale

Amortization of franchise agreement

Amortization of debt issuance cost

Loss on sale of property and equipment

Write-off of deferred offering costs

Deferred tax liability, net

Impairment of goodwill

Changes in operating assets and liabilities -

Prepaid expenses

Prepaid expenses and other current assets

Accounts payable

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CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds (advances to) from investment in related company

Purchase of property and equipment

Proceeds on notes due from related entity

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from sale of common stock and warrants

Proceeds from long-term debt

Principal payments on long-term debt

Net cash used in financing activities

( 3,295,623 )

Payment of debt issuance costs

Net cash provided by (used in) financing activities

CHANGE IN CASH

CASH, BEGINNING OF YEAR

CASH, END OF YEAR

CASH, BEGINNING OF PERIOD

CASH, END OF PERIOD

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest

SUPPLEMENTAL DISCLOSURE OF INVESTING AND FINANCING ACTIVITIES

Transfer of property and equipment to assets held for sale

Excess of fair value of warrants purchased by underwriter

Purchase of property and equipment included in accounts payable

Cash paid for income taxes

See Notes to Consolidated Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Reverse Merger Transaction

BT Brands, Inc.

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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.

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

Effective July 30, 2018, the Company acquired 100 % of the ownership of BTND, LLC (“BTND”) in exchange for common stock through a Share Exchange Agreement (“Share Exchange”).

Following the Share Exchange, BTND became a wholly owned subsidiary of the Company.

In 2020 BT Brands, Inc.

was reincorporated in the State of Wyoming.

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

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.

The Company closed a store in Richmond, Indiana, in 2018, and this location is currently offered for sale.

In addition, the Company owns a restaurant property in St.

Louis, Missouri, which is also held for sale.

The Company operated ten restaurants at the end of fiscal 2021 and 2020.

The Company’s Dairy Queen store is operated under a franchise agreement with International Dairy Queen.

Accordingly, the Company is required to pay royalty and advertising payments and remain in compliance with the franchise agreement terms.

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.

Significant intercompany accounts and transactions were eliminated in consolidation.

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.

Fiscal 2021 was 52 weeks ending January 2, 2022, and Fiscal 2020 was the 53-week period ending on January 3, 2021.

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.

Under the 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 reflect the effect of the reverse split.

Fair Value of Financial Instruments

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The carrying values of cash, receivables, accounts payable and other financial working capital items approximate fair value at year-end due to the short maturity nature of these instruments.

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

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

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

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

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

In 2020, the Company received equity ownership in Next Gen Ice, Inc.

as consideration for its agreement to modify the term of notes receivable.

The notes receivable were repaid in full in August 2020.

Upon repayment of the notes, $ 75,000 was attributed by Company management to the value of the equity received, and this amount was reflected as additional interest income in 2020.

The fair value determined in 2020 continues to be reflected as the value of the investment.

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 and excludes transfers out 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’s revenues consist of purchases of food products for cash or bank-issued credit and debit card transactions at the Company’s restaurants.

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

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

Sales are also reported net of applicable sales taxes.

Receivables consists of rebates due from a primary vendor.

Sales are reported net of applicable sales taxes.

Receivables consist of rebates due from a primary vendor.

Inventory consists of food, beverages, and supplies and is stated at lower of cost (first-in, first-out method) or net realizable value.

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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.

Depreciation is computed using the straight-line method over the estimated useful lives ranging 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 are reviewed at the lowest level for which cash flows can be identified at the restaurant level.

In determining future cash flows, significant estimates are made by the Company for future operating results of each restaurant over its remaining life.

If such assets are concluded to be impaired, the impairment 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 Company may sell an existing unit or close an operating unit and seek to liquidate the property.

The Company is considering options for a property in the St.

Louis area for which the land and building were fully reserved in the 2020 fourth-quarter impairment charge.

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.

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

The Company believes the Richmond property will be sold at or above its current carrying value.

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.

Advertising expenses for fiscal 2021 and 2020 totaled $ 28,934 and $ 29,924 , respectively.

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.

Deferred tax assets are recognized for temporary deductible differences, and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for temporary taxable differences.

Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.

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

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

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

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

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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.

In making such an 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.

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The tax effect of the temporary differences and carryforwards are as follows for the respective fiscal years:

Net operating loss carry forward

Property and equipment

$ ( 197,000 )

$ ( 183,000 )

Future tax benefit of impairment allowance

Paycheck Protection Program loan forgiveness

Total deferred tax liability

Paycheck Protection Program grant income

Net deferred tax liability

$ ( 119,000 )

$ ( 118,000 )

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

Current income tax expense

Deferred income taxes (benefit)

Total income tax expense (benefit)

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

Deferred income taxes

Total income tax expense

Total income tax expense for the years ended January 2, 2022, and January 3, 2021, differed from the amounts computed by applying the U.S.

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

Total expense (benefit) computed by applying statutory federal rate

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

Paycheck Protection Program loan forgiveness

Other permanent differences

Provision for income taxes (benefit)

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

The Company had no accrued interest or penalties relating to any income tax obligations.

Total expense computed by applying statutory federal rate

State income tax, net of federal tax benefit

Paycheck Protection Program grant income

Provision for income taxes

Accounting Standards require 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 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.

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Per Common Share Amounts

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.

Net income 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 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.

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

As a result, no dilutive shares were dilutive as of the years ending in 2021 and 2020.

There are currently 2,760,000 five-year warrants exercisable at $ 5.50 per share outstanding.

These warrants were issued as a part of the Company’s November 12, 2021, public stock offering.

In addition, 102,503 private placement warrants are outstanding with an exercise price of $ 4.00 per share and 16,401 Placement Agent warrants outstanding at an exercise price of $ 3.30 per share.

At the end of fiscal 2021 and 2020, all outstanding warrants were exercisable at prices above the underlying stock’s market price and therefore were not dilutive.

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 amortized over an estimated useful life of 14 years.

Amortization for each of the next five years is estimated to be $ 2,000 per year.

Accumulated amortization was approximately $ 11,000 and $ 9,000 at the end of 2021 and 2020, respectively.

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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.

Restaurant pre-opening expenses may include the costs of hiring and training the initial hourly workforce for each new restaurant, travel, the cost of food and supplies used in training, grand opening promotional expenses, 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.

The preparation of consolidated financial statements in conformity with accounting principles 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.

Stock-Based Compensation

The Company recognizes all stock-based compensation as an expense in its consolidated financial statements.

Equity -classified awards are measured at the grant date fair value of the award.

The Company estimated the grant date fair value using the Black-Scholes option-pricing model.

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.

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.

Covid-19 and the Paycheck Protection Program

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 accounted for the loan’s proceeds 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, and forgiveness income is recognized systematically 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 the forgiveness of the loans in 2020, and the loans were forgiven in 2021.

As a result of the 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.

Under the loan terms, the Company will seek forgiveness of this loan in 2022.

Covid-19 continues to have an impact on the United States economy.

However, as the situation is constantly changing, it is difficult to predict the ever-changing effect 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 foodservice industry and Company’s operating results and financial condition.

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at end of the respective fiscal years:

Property and equipment consisted of the following at the end of the respective fiscal years:

January 2, 2022

January 3, 2021

Total property and equipment

Accumulated depreciation

( 2,630,764 )

( 2,398,503 )

Less - property held for sale

Net property and equipment

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

Depreciation expense for 2021 and 2020 was $ 232,261 and $ 187,687 , respectively.

NOTE 3 – ACCRUED EXPENSES

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

A ccrued expenses consisted of the following at the end of the respective reporting periods:

Accrued real estate taxes

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Accrued vacation pay

Accrued gift card liability

Accrued franchise royalty

Other accrued expenses

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.

NOTE 4 – SHAREHOLDERS’ EQUITY

On November 12, 2021, the Company completed a public offering of Units consisting of share of common stock and one five-year stock purchase warrant to purchase one common share at $ 5.50 .

The Company has the right to redeem the warrants under certain conditions.

The Company issued 2,400,000 common shares in the offering and 2,760,000 stock purchase warrants which included 360,000 warrants to purchase an aggregate of 360,000 shares of common stock purchase pursuant to a partial exercise of the over-allotment option granted to underwriters for $.01 per warrant, $ 3,600 .

The estimated fair value of the warrants at the date of issuance, net of the exercise proceeds, was $ 360,000 , and this amount is reflected as an additional cost of the offering.

After deducting all fees and expenses, net proceeds from the offering were $ 10,696,575 .

During 2018, the Company issued 3,708,000 common shares as part of the Share Exchange.

Upon closing of a related private offering, 205,002 additional common shares, and 102,503 common stock warrants to purchase shares at $ 4.00 through July 31, 2023, were issued to investors for a net amount of approximately $ 492,266 .

All of these warrants were outstanding as of the end of the year.

In addition, 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.

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.

On November 12, 2021, we issued options to purchase an aggregate of 15,000 shares to three outside members of our board of directors.

The options issued to directors are ten-year options and were fully vested upon issuance.

The Company recognized $26,250 of stock-based compensation expense resulting from the option issuance.

The Company used the Black-Scholes option-pricing model to calculate the compensation expense using an estimated risk-free return of 2 % with a 37.5 % volatility factor for the 10 -year option term.

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:

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.

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.

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.

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.

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.

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.

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.

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%.

Three notes payable to a 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 guarenteed

by BT Brands, Inc.

and a shareholder of the Company.

Notes payable 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 28, 2021.

Note payable with interest at 5.50%.

Secured by the Company's West St.

Paul location

and the personal guaranty of a Company Shareholder.

This note and was paid in full in April 2021.

Note payable with interest at 4%.

Secured by property held for sale in Richmond, Indiana and the

personal guaranty of a shareholder of the Company.

This note was paid in full in December 2021.

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

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

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Current maturities

Scheduled maturities of long-term debt, excluding unamortized debt issuance costs, are as follows

Scheduled maturities of long-term debt, excluding amortization of debt issuance costs, are as follows:

NOTE 6 – RELATED PARTY TRANSACTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(NGI), totaling $ 179,000 .

The Company’s CEO, Gary Copperud, was and continues to serve as Chairman of the Board of Directors of NGI.

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

At the time the loans were made, Mr.

Copperud controlled approximately 34 % of the outstanding equity of NGI.

On March 2, 2020, the due date of the loans was extended to August 31, 2020.

In consideration of the loan maturity extension, the Company received 179,000 shares of NGI common stock and warrants to purchase 358,000 shares at $ 1.00 per share through March 23, 2023 , effective February 2, 2022, was extended to a March 23, 2028 expiration.

The warrant term extension was granted in consideration for the Company’s investment of $ 229,000 in NGI Series A1 8 % Cumulative Convertible Preferred Stock on February 2, 2022, including a five-year warrant to purchase 57,250 shares at $ 1.65 per share.

The NGI common stock and common stock purchase warrants received by the Company in March 2020 were recorded in 2020 at a value determined by the Company of $ 75,000 .

The investment in NGI does not have readily determinable market value.

The NGI investment is carried at the cost determined by the Company when the shares and warrants were received, which the Company continues to believe is reasonable.

NOTE 7 – MAJOR VENDOR

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

Approximately 75 % of the Company’s product purchases for the year ended January 2, 2022, were from one vendor.

On January 2, 2022, the amount due to the major vendor totaled $ 229,046 .

In fiscal 2020, 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.

On January 3, 2021, the amount due to this vendor was $ 171,545

NOTE 8 – CONTINGENCIES

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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.

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

NOTE 10 – ACQUISITION

On March 2, 2022, a newly formed subsidiary of the Company acquired the assets of an operating restaurant located in Indian Rocks Beach, Florida.

The acquired assets have operated as Keegan’s Seafood Grille (“Keegan’s”) for more than 35 years, primarily serving the Clearwater and St.

Petersburg, Florida markets.

As part of the purchase, we acquired the Keegan’s Seafood Grille tradename, and we plan to operate the property under the Keegan’s Seafood Grille name.

The Keegan’s assets were acquired for $ 1,150,000 in cash.

The Company has not yet finalized the allocation of the purchase price.

At the time of purchase, we entered into a 132-month triple-net lease for the property occupied by Keegan’s with an initial rent of $ 5,000 per month increasing annually at the greater of 3 % or the increase in the Consumer Price Index over that period.

Changes in and Disagreements with on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data